Rising earnings estimates on the back of strong fourth quarter
and fiscal 2012 results helped CareFusion ( CFN )
achieve a Zacks #1 Rank (Strong Buy) on September 11. Moreover,
this global medical technology company has delivered positive
earnings surprises in six of the last seven quarters with an
average beat of 5.1%.
With a decent one-year return of 17.2% and a history of beating
quarterly earnings estimates, this stock offers an attractive
The Rank Driver
Several factors such as a strong fourth quarter, strategic
initiatives to re-align its portfolio, acquisitions synergistic to
product line and geographical reach as well as share buybacks and
an attractive valuation are driving the stock. While the company is
dogged by product recalls, it is continuously working on investing
in quality systems.
CareFusion reported its fourth quarter and fiscal 2012 results
on August 9, 2012. The company reported 4% year-over-year revenue
growth (at constant exchange rate or CER) to gross $968 million
during the quarter, surpassing the Zacks Consensus Estimate of $956
million. Revenues increased 5% in fiscal 2012 to $3.6 billion. The
strength of the Medical Systems segment helped CareFusion reach the
high end of its revenue guidance range of 3−5%.
Adjusted earnings per share ("EPS") from continuing operations
came in at 51 cents for the fourth quarter and $1.78 for fiscal
2012, which is in the middle of the $1.75−$1.80 guidance range
The Medical Systems segment recorded 10% revenue growth at CER
to $646 million during the quarter. Record installations of
Infusion Systems and double-digit sales growth in both Respiratory
Technologies and Dispensing Technologies contributed to the growth
of the Medical Systems business. Procedural Solutions, however,
recorded a 6% decline at CER to $322 million due to lower sales in
the Specialty Disposables business arising from a difficult
The company is progressing with its sales force realignment. The
newly formed surgical and vascular teams are gaining traction in
their new territories thereby strengthening the company's
CareFusion continued with its share repurchase program. The
company repurchased 1.9 million shares for $50 million during the
quarter and 3.9 million shares for $100 million during the
For fiscal 2013, CareFusion expects to report 1−3% revenue
growth (at CER) resulting in adjusted EPS of $2.11−$2.21. The two
segments of the company - Medical Systems and Procedural Solutions
- are expected to grow at 1-3% and 0-2%, respectively.
The company is also targeting a 12−14% compounded EPS growth
rate through fiscal 2015 on the back of capital allocation in the
form of suitable acquisitions and share buyback programs.
Earnings Estimate Revisions
Given CareFusion's solid performance in the fourth quarter, the
Zacks Consensus Estimate for fiscal 2013 increased 9.1% to $2.16
per share based on 10 upward estimate revisions over the last 30
days. The current estimate implies year-over-year growth of
For fiscal 2014, 11 out of 12 estimates were revised higher over
the same time frame, raising the Zacks Consensus Estimate by 7.2%
to $2.37 per share, implying year-over-year growth of 9.9%.
Valuation of CareFusion looks compelling compared to its peers
by most metrics. Based on 2013 earnings estimates, the company is
trading at a price-to-earnings (P/E) of 12.85x, a 16.6% discount to
the peer group average of 15.41x. The price-to-book of 1.19x is at
a 34.6% discount to the peer group average of 1.82x. Valuation
looks attractive with respect to the price-to-sales (P/Sales) ratio
as well. The P/Sales ratio of the company stood at 1.69, a 13.3%
discount to the peer group average of 1.95.
About the Company
CareFusion, with market capitalization of $6.14 billion, is a
global medical technology company with a portfolio encompassing IV
infusion, medication and supply dispensing, respiratory care,
infection prevention and surgical instruments to customers in the
US and over 130 countries throughout the world. The company's
customer profile in the US includes hospitals, ambulatory surgical
centers, clinics, long-term care facilities and physician offices.
CareFusion, incorporated in Delaware, was spun off from
Cardinal Health ( CAH ) on
August 31, 2009.
The company has grown both through the organic and the inorganic
route. The latest acquisition, in June 2012, was that of U.K.
Medical Limited, a leading distributor of medical products to the
National Health Service and private health care sector in the
United Kingdom. Earlier, in April 2012, in a strategic decision to
simplify its operations, CareFusion sold its Nicolet
neurodiagnostic and monitoring products business to Natus
Medical ( BABY ) for $58 million.
NATUS MEDICAL (BABY): Free Stock Analysis
CARDINAL HEALTH (CAH): Free Stock Analysis
CAREFUSION CORP (CFN): Free Stock Analysis
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