Today, Jefferies initiated Mindray Medical (MR) with a Buy and a $31 price target. Upon hearing this, I decided to update my charts on MR. Here’s my take:
Sharek’s Take
- The one-year chart of MR is on the right. The stock looks like a heart monitor that made its last beat. The stock is still trending down. There have also been two big drops after disappointing earnings were announced during the last year. I hate when a stock opens lower after reporting — you can’t get out.
- Profit growth for this Chinese company isn’t even keeping up with the country’s GDP growth. 7% growth last quarter, with even lower estimates coming.
- At 17 times earnings, the stock is not undervalued. Yes, Mindray is a medical device company, but $31 is almost 20 times earnings — for single digit growth (if that even happens, more on that below).
- Mindray has a history of letting down investors. The earnings table (below/right) shows a consistency of lowering estimates — then missing those lowered expectations. Even future quarters just got cut — so how can we think that’s not going to continue?
- The only positive in the earnings table is that Annual Profit Estimates have stabilized.
Bottom Line
I used to have MR in the Growth Portfolio. I keep the stock on my radar just because I don’t want to miss a big move higher. Nothing about the current situation makes me wish to buy this stock.
I’m not going to slam the analyst for initiating MR with a Buy rating. Maybe the reason it’s a Buy is because the coverage is new and he/she is not familiar with the stock. Maybe the analyst is more in tune with the situation than I am. For instance what China’s budget for medical devices will be in 2011 and how much of that will go Mindray’s way? What I do know is this stock doesn’t fit the mold I’m looking for — at least not now anyway.
