) completed the divestment of its Pharmaceutical unit,
Mallinckrodt. The company had taken this initiative to streamline
its business and focus on its remaining Medical Devices and
Medical Supplies businesses.
Mallinckrodt started to trade independently on the New York Stock
Exchange (NYSE) from Jul 1, under the ticker symbol "MNK".
Meanwhile, Covidien will continue to trade with the same ticker
symbol "COV". Shareholders received 1 ordinary share of
Malinckrodt in lieu of every 8 ordinary shares of Covidien.
Management believes that the divestment 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.
Moreover, management reiterated the long-term goal of generating
mid-single digit top-line growth and double-digit bottom-line
growth. Additionally, the company retained its commitment to
return up to 50% of its free cash flow to its shareholders.
We are apprehensive regarding the risks associated with this
divestment. Mallinckrodt was performing well and contributing
significantly to the top line (17% of net sales in fiscal 2012).
This segment generated revenues of about $2 billion in fiscal
2012. Given the current difficult healthcare environment,
uncertainty looms over the growth prospects of the two remaining
businesses at Covidien.
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 its performance improves,
other medical device stocks worth a look are
Wright Medical Group
). While WMGI carries a Zacks Rank #1 (Strong Buy), the other two
stocks carry a Zacks Rank #2 (Buy).
COVIDIEN PLC (COV): Free Stock Analysis
EDWARDS LIFESCI (EW): Free Stock Analysis
HANGER ORTHOPED (HGR): Free Stock Analysis
WRIGHT MEDICAL (WMGI): Free Stock Analysis
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