Medtronic: Testing Fibo 61.8% amid Earnings Release

The US stock market ended its winning streak last week as participants remain cautious following tough talk from most central bankers – the S&P 500 slid 2.34% to 4228, leaving its highest mark above its 16-week high (4327 vs 4303), the Nasdaq (US100) fell 3.7% to 13249 while the Dow Jones (US30) ended flat near the close price of the week prior, at 33686. Fed Chair Jerome Powell’s speech at Jackson Hole will be under the spotlight this week. His speech may reset market expectations on a Fed pivot.

Medtronic, an American medical technology company founded in 1949 which engages in the development, manufacture, distribution and sale of device-based medical therapies and services, is scheduled to release its earnings report for the first quarter of fiscal year 2023 this Tuesday (23rd August), before market open.

Fig.1: Reported Sales and EPS versus Analyst Forecast for Medtronic. Source: money.cnn
Fig.2: Global Supply Chain Pressure Index (GSCPI), Jan’20 – July’22. Source: Statista

In the previous quarter, Medtronic reported sales hit $8.1B, below analyst expectations of $8.4B. Non-GAAP net income was flat at $2.038B (y/y), while non-GAAP diluted EPS increased 2% (y/y) at $1.52. According to the management, the company has been continuously adversely impacted by global chain issues as well as China lockdowns, “but expect them to resolve over the near term”. As of July 2022, the global supply chain pressure index (GSCPI) dropped to 1.84, the lowest level since January last year.

In the upcoming announcement, consensus estimates for sales stood at $7.2B, down approximately -11% (q/q) and -10% (y/y). EPS is predicted to hit $1.12, down -26.32% from the previous quarter and down -20.57% from the same period last year. According to Zacks Equity Research, this pessimistic outlook was derived from the “full impact of inflation, global supply chain as well as extended Covid-led restrictions in China to be realized in Q1 and Q2 of fiscal 2023”.

On a positive note, the recent launch of Leadless Pacemakers in Japan and China, increased market share in Cranial and Spinal technologies, strong adoption of AI-enabled surgical planning platform in US, strong momentum from new products in neuromodulation, continued execution of turnaround strategy in fighting against diabetes, etc – these factors may serve as tailwind for the company in the long run.

Technical Analysis:

The #Medtronic share price has remained pressured below the 100-weekly SMA throughout this year, leaving the highest print at $114.23. The company’s share price held gains for six consecutive weeks since its rebound from the low at $86.66. The 61.8% Fibonacci level at $96.40 serves as the nearest resistance to watch. Breaking above this level may indicate the possibility for the bulls to continue testing $103.94 (FR 50.0%) – $105 (median estimate given by analysts), followed by $111.47. Otherwise, if the bullish breakout is unsuccessful, we may see the price retrace testing $85.00 (low estimate given by analysts) – $85.67 (FR 78.6%), followed by the lows seen in March 2020, at $72.00. Both MACD lines formed a golden cross, but hovered below the 0 line. RSI is moving upward towards 50.0, while the Stochastic indicator shows overbought.

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Larince Zhang

Market Analyst 

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