Rising earnings estimates in the wake of strong fourth quarter
and fiscal 2012 results helped
) hit its 52-week high of $28.62 on September 19. This global
medical technology company has a history of beating quarterly
earnings estimates and has returned more than 15% in the past year.
In addition to its strong fourth quarter, the stock is being driven
by strategic initiatives to realign its portfolio, acquisitions,
share buybacks and an attractive valuation.
Strong Fourth Quarter
CareFusion reported its fourth quarter and fiscal 2012 results on
August 9. Revenue grew 4% year over year (at constant exchange rate
or CER) to $968 million during the quarter, surpassing the Zacks
Consensus Estimate of $956 million by 1.3%. 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 between 3% and 5%.
Adjusted earnings from continuing operations came in at 51 cents
per share for the fourth quarter, beating the Zacks Consensus
Estimate by 2%. For fiscal 2012, it reached $1.78, right in the
middle of the company's $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.
Procedural Solutions, however, recorded a 6% decline at CER to $322
million, due to lower sales in the Specialty Disposables business.
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
For fiscal 2013, CareFusion expects to report revenue growth (at
CER) between 1% and 3%, resulting in adjusted earnings of $2.11 to
$2.21 per share. The company is also targeting a 12% to 14%
compounded annual EPS growth rate through fiscal 2015 on the back
of capital allocation through suitable acquisitions and share
Earnings Estimate Revisions
Earnings estimates have been on an uptrend over the last 60 days.
The Zacks Consensus Estimate for fiscal 2013 advanced almost 9.1%
to $2.16 per share, representing year-over-year growth of about
21.2%. Meanwhile, the Zacks Consensus Estimate for fiscal 2014 is
up 6.8% to $2.37 per share, representing year-over-year growth of
Valuation of CareFusion looks compelling compared to its peers by
most metrics. Based on fiscal 2013 earnings estimates, the company
is trading at a price-to-earnings (P/E) of 13.20x, a 16.8% discount
to the peer group average of 15.87x. The price-to-book of 1.22x is
at a 35.8% discount to the peer group average of 1.90x. Valuation
looks attractive with respect to the price-to-sales (P/S) ratio as
well. The P/S ratio of the company stood at 1.73, a 12.6% discount
to the peer group average of 1.98.
Chart Reflects Strength
The stock gained momentum on August 1 based on a solid earnings
expectation. It has been consistently trading above its 200-day and
50-day moving averages over the past month, following a strong
fourth quarter. Several earnings beats, rising estimates and upbeat
growth prospects make CareFusion worth considering.
CareFusion, with a market capitalization of $6.32 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
) on August 31, 2009. The company has grown both through the
organic and the inorganic route. Earlier, in April 2012, in a
strategic decision to simplify its operations, CareFusion sold its
Nicolet neurodiagnostic and monitoring products business to Natus
) for $58 million.
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