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Medtronic Stock Moves Above 50-Day SMA: Should You Buy MDT?
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Shares of Medtronic (MDT - Free Report) have been on a rough ride so far in 2024, replicating the overall medical device sector’s bearish trend, impacted by severe margin constraints. However, growing optimism surrounding the Fed’s approach toward an imminent rate cut comes as a relief for investors. On Jul 30, a day before the fifth interest rate decision of 2024 by the Federal Reserve, the stock finally broke through its 50-day simple moving average (SMA), indicating a potential short-term bullish trend.
This is significant as for nearly two months, MDT was performing below this trendline. The stock finally breaking above the 50-day SMA can be a piece of good news for investors, signaling “support” for an uptrend.
MDT Breaks Out Above the 50-Day Moving Average
Image Source: Zacks Investment Research
Even if we consider the past few days’ price movement, the stock was seen outperforming the benchmarks, the broader industry as well as its major peers. Over the past seven days, shares of the company have risen 0.4%, underperforming the industry, the S&P 500 as well as its key rivals like Boston Scientific (BSX - Free Report) and Abbott (ABT - Free Report) .
Seven-Day Price Performance
Image Source: Zacks Investment Research
With investors’ sentiment starting to pick up for Medtronic, it is the right time to assess the stock’s potential upsides. Let’s delve deeper.
Inflation Seems to Fade: IMF’s July world economic outlook boasts about the global inflation rate declining steadily, from 6.8% in 2023 to 5.9% in 2024. This has, to some extent, resisted the downward spiral for MedTech giants like Medtronic.
This bullish projection seems all the more pertinent following the Fed’s favorable interest rate decision for 2024 on Jul 31. The Fed, while keeping the interest rate for the United States unchanged for now, has signaled the formation of sufficiently favorable ground suitable for a rate cut in September. This gesture, as per market watchers, directs to gradual stabilization in the labor market along with the easing out of inflation.
Needless to say, a rate cut and easing inflation will help Medtronic to boost its revenues, lower its costs and thereby get itself back to the high growth track.
Strong Fundamentals Lead to Bright Growth Prospects: Although Medtronic has suffered several debacles in recent times, considering the stock’s strong fundamentals and agile moves toward executing its business strategies, we strongly believe these downsides are short-lived.
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. Within Cardiovascular, Medtronic is gaining market share, banking on product launches. In MedSurg, Medtronic is scaling the production of the Hugo robotic system.
For Hugo, the company is expanding regulatory approvals and ramping up installations to see continued progress internationally. Within Structural Heart, Medtronic is gaining from the launch of Evolut FX in Japan and Europe. Innovations and market expansion efforts are helping it largely offset the impact of inflation and supply disruptions.
The company's ENT business within the Specialty Therapies division in the Neuroscience portfolio continues to contribute positively. Further, the company’s Cardiac Pacing business continues to drive growth, banking on strong global growth of its Micra leadless pacemaker. Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations.
In terms of dividends, too, even after considering the company’s slowing rate of dividend hike, the current yield of more than 3.5% outperforms the industry and the sector average. The company’s current payout ratio stands at 53% compared with 36.5% for the industry.
For investors’ note, Abbott’s dividend yield TTM is 2.2%, while BSX does not pay any dividends.
Medtronic's Dividend Track Record
Image Source: Zacks Investment Research
Cheap Valuation
MDT stock is currently trading at a discount when compared to the Medical Products industry. Its forward 12-month P/E of 14.49X is lower than the industry’s 20.1X at this moment.
Price/Earnings Ratio (F12M)
Image Source: Zacks Investment Research
Stumbling Blocks
Sino-U.S. Trade Complications to Mar Growth
Medtronic’s fiscal 2025 outlook particularly played an important role in the continued downtrend of the stock price. While the company’s fiscal fourth-quarter 2024 and full-year results outperformed the Zacks Consensus Estimate, Medtronic adopted a cautionary stance while providing the fiscal 2025 guidance. The projected numbers fell short of Street estimates, disappointing investors. In fact, we believe Medtronic’s bearish stance might be a result of growing Sino-U.S. trade complications. The 2024 National Trade Estimate report depicted severe concern around this scenario and outlined the overwhelming impact of Chinese volume-based procurement (VBP) and the Made in China 2025 industrial plan on U.S. medical device businesses.
Medtronic, which records approximately 7% of its operational revenues from China (as of fiscal 2024), might face a compromised trade situation in the ongoing fiscal if the trade tension between these two countries does not get resolved any time soon.
Strong Dividend Growth Rate May Be Hard to Achieve
Medtronic, as a popular dividend-paying stock, managed to increase its quarterly dividend for the 47th straight quarter this May. However, this, too, could not pull up the stock price. This is because despite the company generating a significant profit margin through 2024, the dividend hike was merely a penny per share. Considering the lackluster future projection and the ongoing supply chain issues, we expect a further conservative approach in terms of dividend hikes going forward.
Should You Invest in Medtronic Right Now?
Despite the company’s several upsides and dividend pay-out trend outperforming the industry standard, the ongoing short-term hiccups in the form of international trade challenges and supply issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
Image: Shutterstock
Medtronic Stock Moves Above 50-Day SMA: Should You Buy MDT?
Shares of Medtronic (MDT - Free Report) have been on a rough ride so far in 2024, replicating the overall medical device sector’s bearish trend, impacted by severe margin constraints. However, growing optimism surrounding the Fed’s approach toward an imminent rate cut comes as a relief for investors. On Jul 30, a day before the fifth interest rate decision of 2024 by the Federal Reserve, the stock finally broke through its 50-day simple moving average (SMA), indicating a potential short-term bullish trend.
This is significant as for nearly two months, MDT was performing below this trendline. The stock finally breaking above the 50-day SMA can be a piece of good news for investors, signaling “support” for an uptrend.
MDT Breaks Out Above the 50-Day Moving Average
Image Source: Zacks Investment Research
Even if we consider the past few days’ price movement, the stock was seen outperforming the benchmarks, the broader industry as well as its major peers. Over the past seven days, shares of the company have risen 0.4%, underperforming the industry, the S&P 500 as well as its key rivals like Boston Scientific (BSX - Free Report) and Abbott (ABT - Free Report) .
Seven-Day Price Performance
Image Source: Zacks Investment Research
With investors’ sentiment starting to pick up for Medtronic, it is the right time to assess the stock’s potential upsides. Let’s delve deeper.
Inflation Seems to Fade: IMF’s July world economic outlook boasts about the global inflation rate declining steadily, from 6.8% in 2023 to 5.9% in 2024. This has, to some extent, resisted the downward spiral for MedTech giants like Medtronic.
This bullish projection seems all the more pertinent following the Fed’s favorable interest rate decision for 2024 on Jul 31. The Fed, while keeping the interest rate for the United States unchanged for now, has signaled the formation of sufficiently favorable ground suitable for a rate cut in September. This gesture, as per market watchers, directs to gradual stabilization in the labor market along with the easing out of inflation.
Needless to say, a rate cut and easing inflation will help Medtronic to boost its revenues, lower its costs and thereby get itself back to the high growth track.
Strong Fundamentals Lead to Bright Growth Prospects: Although Medtronic has suffered several debacles in recent times, considering the stock’s strong fundamentals and agile moves toward executing its business strategies, we strongly believe these downsides are short-lived.
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. Within Cardiovascular, Medtronic is gaining market share, banking on product launches. In MedSurg, Medtronic is scaling the production of the Hugo robotic system.
For Hugo, the company is expanding regulatory approvals and ramping up installations to see continued progress internationally. Within Structural Heart, Medtronic is gaining from the launch of Evolut FX in Japan and Europe. Innovations and market expansion efforts are helping it largely offset the impact of inflation and supply disruptions.
The company's ENT business within the Specialty Therapies division in the Neuroscience portfolio continues to contribute positively. Further, the company’s Cardiac Pacing business continues to drive growth, banking on strong global growth of its Micra leadless pacemaker. Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations.
In terms of dividends, too, even after considering the company’s slowing rate of dividend hike, the current yield of more than 3.5% outperforms the industry and the sector average. The company’s current payout ratio stands at 53% compared with 36.5% for the industry.
For investors’ note, Abbott’s dividend yield TTM is 2.2%, while BSX does not pay any dividends.
Medtronic's Dividend Track Record
Image Source: Zacks Investment Research
Cheap Valuation
MDT stock is currently trading at a discount when compared to the Medical Products industry. Its forward 12-month P/E of 14.49X is lower than the industry’s 20.1X at this moment.
Price/Earnings Ratio (F12M)
Image Source: Zacks Investment Research
Stumbling Blocks
Sino-U.S. Trade Complications to Mar Growth
Medtronic’s fiscal 2025 outlook particularly played an important role in the continued downtrend of the stock price. While the company’s fiscal fourth-quarter 2024 and full-year results outperformed the Zacks Consensus Estimate, Medtronic adopted a cautionary stance while providing the fiscal 2025 guidance. The projected numbers fell short of Street estimates, disappointing investors. In fact, we believe Medtronic’s bearish stance might be a result of growing Sino-U.S. trade complications. The 2024 National Trade Estimate report depicted severe concern around this scenario and outlined the overwhelming impact of Chinese volume-based procurement (VBP) and the Made in China 2025 industrial plan on U.S. medical device businesses.
Medtronic, which records approximately 7% of its operational revenues from China (as of fiscal 2024), might face a compromised trade situation in the ongoing fiscal if the trade tension between these two countries does not get resolved any time soon.
Strong Dividend Growth Rate May Be Hard to Achieve
Medtronic, as a popular dividend-paying stock, managed to increase its quarterly dividend for the 47th straight quarter this May. However, this, too, could not pull up the stock price. This is because despite the company generating a significant profit margin through 2024, the dividend hike was merely a penny per share. Considering the lackluster future projection and the ongoing supply chain issues, we expect a further conservative approach in terms of dividend hikes going forward.
Should You Invest in Medtronic Right Now?
Despite the company’s several upsides and dividend pay-out trend outperforming the industry standard, the ongoing short-term hiccups in the form of international trade challenges and supply issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.