) has moved a step further with the decision to divest its
Pharmaceuticals business, Mallinckrodt. Covidien's board of
directors has given a green signal for the divestment, to be
effective by end-June with the declaration of a dividend.
Shareholders will get 1 ordinary share of Malinckrodt in lieu of
every 8 ordinary shares of Covidien. They will get cash in
exchange of fractional shares, while no such shares of
Mallinckrodt will be issued. The distribution is slated to take
place on Jun 28 to shareholders of record as of Jun 19.
Following the completion of the divestment, Mllinckrodt will
begin to trade independently on the New York Stock Exchange
(NYSE) from Jul 1 under the ticker symbol "MNK". Meanwhile,
Covidien will continue to have the same ticker symbol "COV".
Management believes that the spin-off will be beneficial to
Covidien's shareholders in the long term, as it will help the
company focus on its high-margin surgical product portfolio.
However, we remain on the sidelines regarding risks associated
with this divestment. The Pharma business is performing well and
contributing significantly to the top line. Following the
divestment, Covidien will be left with only the Medical Devices
and Supplies businesses. Given the current difficult healthcare
environment, uncertainty looms over the growth prospects of these
Further, management has lowered its guidance due to the
unfavorable foreign currency fluctuations. Operating margin is
also expected to remain under pressure. Additional future
investment-related expenses might further weigh on Covidien's
Moreover, the company reported soft second-quarter fiscal 2013
results on Apr 26. Net income from continuing operations (as
reported) dropped 10.2% on account of higher expenses.
Following the release of the second-quarter results and the
guidance for fiscal 2013, the Zacks Consensus Estimate for 2013
has significantly gone down 17.8% to $3.70 per share. The Zacks
Consensus Estimate for 2014 has also declined 17.1% to $4.06 per
share. With the Zacks Consensus Estimate for both 2013 and 2014
going down, the company now has a Zacks Rank #5 (Strong Sell).
While we prefer to avoid Covidien until we see signs of
improvement in the company's performance, other medical device
stocks worth a look are
). All these stocks carry a Zacks Rank #2 (Buy).
COVIDIEN PLC (COV): Free Stock Analysis
CONCEPTUS INC (CPTS): Free Stock Analysis
MYRIAD GENETICS (MYGN): Free Stock Analysis
NEOGEN CORP (NEOG): Free Stock Analysis
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