Rising earnings estimates on the back of strong third quarter
fiscal 2012 results helped
) achieve a Zacks #1 Rank (Strong Buy) on September 11. Moreover,
this contact lens and women's health focused company has delivered
positive earnings surprises in six of the last seven quarters with
an average beat of 10.9%.
With a strong one-year return of 28.9%, an upgraded fiscal 2012
guidance and a history of beating quarterly earnings estimates,
this stock offers an attractive investment opportunity.
The Rank Driver
Several factors such as a strong third quarter, raised guidance,
margin expansion, acquisitions expanding the product line and
geographical reach as well as share buybacks and an attractive
valuation are driving the stock.
Cooper reported its third quarter fiscal 2012 results on
September 6, 2012. Adjusted earnings per share ("EPS") came in at
$1.45, reflecting an earnings surprise of 12.4% and a 26.4%
The company reported 8% year-over-year revenue growth (up 9% at
constant exchange rate or CER and before acquisitions) grossing
$378.2 million during the quarter. With this the company surpassed
the Zacks Consensus Estimate of $368 million. The upside was
primarily on the back of 5% growth in CooperVision revenue to
The company's women's health franchise, CooperSurgical, recorded
20% growth to $64 million, of which $5.6 million came from the
acquisition of Origio in July. Denmark-based Origio develops,
manufactures and distributes highly specialized products targeting
in-vitro fertilization ("IVF") treatment. Excluding acquisitions,
CooperSurgical grew 6% during the quarter.
Improved margins in both the divisions led to a 170 basis point
year-over-year expansion in adjusted gross margin to 63.5% during
the quarter. In spite of higher selling, general and administrative
(up 4.6% to $139.8 million, adjusted) and research and development
(up 12.2% to $13.2 million) expenses, adjusted operating margin
(excluding expenses associated with the Origio deal) increased 270
basis points to 21.5%.
Cooper is confident of sustaining the improving margin trend.
There is further scope for margin upside with the elimination of
the silicone hydrogel (a major product material) royalty as patents
expire in September 2014 in the US and in March 2016 in the rest of
the world. In addition, the company is targeting manufacturing cost
reductions, and improving capacity utilization and yields that are
likely to drive margin.
Cooper continued with its share repurchase program. The company
repurchased 321,000 shares for $25 million during the quarter
taking year-to-date repurchases to 984,000 shares for $71.1
Cooper raised its revenue guidance for fiscal 2012 to
$1,439−$1,449 million (previous guidance was $1,400−$1,440 million)
comprising $1,186−$1,191 million ($1,175−$1,205 million) in
revenues from CooperVision and $253−$258 million ($225−$235
million) from CooperSurgical. While the outlook for CooperVision
was narrowed, an upped guidance for CooperSurgical takes into
account the Orogio acquisition.
Given the strong operating results in the third quarter, the
company increased its adjusted EPS guidance for fiscal 2012 to
$5.19−$5.24 ($4.90−$5.15). Free cash flow is now projected in the
range of $210−$230 million ($200−$230 million) for the
Estimates Inch Up
Cooper's solid performance in the third quarter and the raised
fiscal 2012 guidance encouraged 7 upward estimate revisions in as
many days. With this, the Zacks Consensus Estimate for fiscal 2012
climbed 3.6% to $5.22 per share. The current estimate implies
year-over-year growth of 16.1%.
For fiscal 2013, 8 out of 9 estimates were revised higher over
the same time frame, raising the Zacks Consensus Estimate by 3.8%
to $5.79 per share, implying year-over-year growth of 10.9%.
Valuation of Cooper looks reasonable compared to its peers by
most metrics. Based on 2012 earnings estimates, the company is
trading at a price-to-earnings (P/E) of 18.11x, a nominal premium
to the peer group average of 18.04x. Moreover, the price-to-book of
2.17x is at a 9.2% discount to the peer group average of 2.39x.
Valuation looks attractive with respect to the
return-on-investment (ROI) ratio as well. The ROI ratio of the
company stood at 10.7% compared with 9.9% of the peer group
About the Company
Headquartered in Pleasanton, California, Cooper is a global
medical products company specializing in a wide range of contact
lenses and also targets the women's health market. With a market
capitalization of $4.66 billion, the company has a wide portfolio
of spherical, toric and multifocal contact lenses using
phosphorylcholine technology and silicone hydrogel Aquaform
technology. Within the $7 billion soft contact lens industry,
Cooper is estimated to have approximately 30% share in the high
growth specialty lens categories. Besides, the women's health
segment was strengthened by the acquisition of Origion. However,
these businesses are highly competitive with the presence of
well-capitalized players such as
Johnson and Johnson
) and CIBA Vision, a unit of
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