International healthcare products major
), divulged its outlook for fiscal 2014, and highlighted some of
its key initiatives to boost the company's growth profile in 2014
and beyond at its investor meeting.
COV expects revenues to grow 2%-5% year over year at constant
exchange rate (CER) for fiscal 2014. Revenues for the core
Medical Devices segment (almost 80% of total revenues) 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
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 payout
ratio of at least 30% within the next 12 months.
Covidien outlined some growth initiatives to achieve these
targets. It plans to primarily focus on product innovations,
emerging markets, accretive portfolio and investment
opportunities, and efficient capital allocation, along with
operational leverage, to boost its future performance in a
difficult Med-Tech space.
Chairman, President and CEO José E. Almeida said that the company
is aggressively trying to adapt to the changing healthcare
environment with new offerings under all product lines, as well
as value-added services, and an evolving commercial model. The
company will utilize its strong cash flow to acquire lucrative
businesses, while remaining committed to return 50% of its free
cash flow to shareholders via share repurchases and dividend
Although Covidien's long-term growth strategies appear to be
promising, we remain on the sidelines given the moderate revenue
and margin outlook for fiscal 2014. The company's revenues rose
6% at CER in the last nine months of fiscal 2013 ended Jun 28,
Segment-wise, the Medical Devices segment revenues increased
7%, while the Medical Supplies revenues inched up 1%. Further,
adjusted operating margin was 22.5% for the nine-month period
ended Jun 28, 2013, compared with 23.7% for the year-ago period.
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We had expected management to fully focus on boosting top as well
as bottom line growth following the divestment of the
Pharmaceutical unit. However, the outlook for fiscal 2014 appears
bleak and failed to impress us. We are cognizant regarding the
challenges lying ahead of COV in a stringent healthcare
environment with significant end market pressures.
Following the announcement of the highlights of the investor
meet, COV's share price declined 1.5% to close at $60.45 on
Friday, Sep 13. This reflects negative sentiments among
The stock has a Zacks Rank #3 (Hold). Other medical products
companies that warrant a look include
), carrying a Zacks Rank #1 (Strong Buy), and
), both carrying a Zacks Rank #2 (Buy).