Covidien Completes Confluent Surgical Sale - Analyst Blog


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The Irish medical device maker Covidien plc ( COV ) revealed that it has completed the sale of its Confluent Surgical product line to Integra LifeSciences Corporation for roughly $235 million in cash. However, shares of the company fell 2.5% since the announcement reflecting lack of enthusiasm among the investors regarding the news.

The Confluent Surgical product line comprises soft tissue repair division of COV's Medical Devices segment, which generated about $65 million in sales in fiscal 2012. It includes product brands such as DuraSeal, DuraSeal Exact/Xact, VascuSeal, and SprayShield.

As part of the deal, Covidien will also receive up to $30 million, based on the achievement of certain performance milestones related to the transition of the Confluent Surgical product line to Integra. With the sale, COV intends to focus on its global strategic plans.

Although Covidien expects the transaction to be dilutive to fiscal 2014 earnings per share, the company believes the underlying strength of its businesses will be able to offset the dilution. Consequently, COV believes that the sale of Confluent Surgical product line will not have any material impact on its guidance for fiscal 2014.

Covidien, a Zacks Rank #2 (Buy) stock, posted adjusted earnings per share from continuing operations of 91 cents for the fourth quarter of fiscal 2013, which beat the Zacks Consensus Estimate by a penny. Adjusted earnings also increased 6% from 86 cents reported in the prior-year quarter, despite headwinds from foreign exchange movements, the medical device excise tax and escalated investments in emerging markets.

For fiscal 2013, COV's adjusted earnings per share from continuing operations increased 3% to $3.72, beating the Zacks Consensus Estimate by a penny. However, net income declined 2% to $1,600 million (or $3.40 a share) from $1,637 million (or $3.37 per share) a year ago.

Revenues in the fourth quarter grew 2% (up 5% in constant currency) to $2,560 million, almost in line with the Zacks Consensus Estimate of $2,561 million. On a geographic basis, revenues in the U.S. market decreased 2% to $1,295 million. On the other hand, international revenues climbed 8% (13% in constant currency) to $1,265 million, driven by emerging market growth.

For fiscal 2013, revenues grew 4% to $10,235 million, roughly in line with the Zacks Consensus Estimate of $10,238 million. On constant currency basis, revenues increased 6%.

For fiscal 2014, Covidien expects revenues to grow 2-5% year over year at constant exchange rate (CER). Revenues for the core Medical Devices segment is anticipated to grow in the range of 2-5%, while the same for the smaller Medical Supplies business is likely to remain flat in the fiscal year.

Moving ahead, adjusted operating margin is likely to remain in the band of 21.5-22.5% and effective tax rate in the range of 16.0-17.0%. Moreover, COV is aiming a dividend payout ratio in excess of 35% over time and is targeting to achieve a ratio of at least 30% within the next 12 months.

Some other players in the medical products sector include NuVasive, Inc. ( NUVA ), Advaxis, Inc. ( ADXS ) and Cardiovascular Systems Inc. ( CSII ).  NuVasive carries a Zacks Rank #1 (Strong Buy), while both Advaxis and Cardiovascular Systems carry a Zacks Rank #2 (Buy).

ADVAXIS INC (ADXS): Get Free Report

COVIDIEN PLC (COV): Free Stock Analysis Report

CARDIOVASCLR SY (CSII): Free Stock Analysis Report

NUVASIVE INC (NUVA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
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