Covidien reported strong fourth-quarter fiscal 2014 results wherein
both earnings and revenues improved year over year and also
exceeded our expectations. Earnings surged 26.4% year over year on
stringent cost control as well as higher sales across all segments.
We believe that Covidien is poised to grow on the back of new
product launches, strategic acquisitions along with expansion in
emerging markets. Moreover, its recent takeover by Medtronic is
expected to generate significant synergies going forward. However,
the company faces stiff competition and remains exposed to pricing
and utilization headwinds in certain end-markets. As a result, we
reiterate our Neutral recommendation and set a price target of
Covidien Plc, based in Dublin, Ireland, is a global leader in
the development, manufacture, and distribution of medical devices
and supplies, diagnostic imaging agents, and other health care
products through its subsidiaries for use in clinical and home
settings across the U.S. and international markets. The company was
incorporated in 2000 as a fully-owned subsidiary of manufacturing
conglomerate Tyco International Ltd. Covidien spun off from Tyco
International in Jun 2007 to become a public company.
After the spin-off of its Pharmaceutical Division (Mallinckrodt)
on Jun 30, 2013, the company started operating through two
segments: Medical Devices and Medical Supplies, effective Oct 1,
According to the new reporting structure, the results of the
Medical Supplies segment in Western Europe have been reflected in
the Medical Devices segment. Product line sales under Medical
Devices segment have been reported in three categories: (i)
Surgical Solutions (ii) Vascular Therapies and (iii) Respiratory
& Patient Care. Also, sales are primarily based on customer
location, i.e., (i) U.S. (ii) Non-U.S. Developed Markets and (iii)
Emerging Markets, rather than location of the selling entity.
Surgical Solutions comprises Advanced Surgical and General
Surgical product groups Vascular Therapies comprises Peripheral
Vascular and Neurovascular product groups and Respiratory and
Patient Care comprises Patient Monitoring, Airway &
Ventilation, Nursing Care and Patient Care.
The Medical Devices segment (85.3% of total revenues in FY14)
includes the development, manufacture and sale of a broad spectrum
of endomechanical instruments, energy devices, soft tissue repair
products, vascular products, oximetry and monitoring products,
airway and ventilation products, and other medical products. The
company offers its products to physicians, nurses, materials
managers, group purchasing organizations and governmental health
The Medical Supplies segment (14.7%) offers nursing care
products, including those for wound care and surgery such as
operating room supply products and related accessories. Supplies
include electrodes, chart paper product lines, SharpSafety
products, and original equipment manufacturer products including
medical supplies such as needles and syringes, and incontinence
Covidien is currently in the process of being acquired by
Medtronic for a total cash and stock value of $42.9 billion. The
acquisition, announced on Jun 15, 2014, is in its final leg as the
deal has obtained all necessary regulatory go-aheads including
shareholders' approval of both companies. As of now, the deal is
expected to close in the last week of January or early Feb 2015,
subject to the approval of the Ireland High Court.
Note: The company's fiscal year ends on Sep 29 fiscal references
do not coincide with the calendar year.
Covidien plc (COV): Read the Full Research
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