Covidien plc (COV): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Covidien's fiscal 2014-third quarter adjusted EPS rose 14.3% to $1.04, beating the Zacks Consensus Estimate by $0.04. Revenues increased 4.3% to $2,688 million but marginally missed the Zacks Consensus Estimate of $2,690 million. Covidien is poised to grow on the back of new products, strategic acquisitions along with expansion into 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 target of $96.00.

Overview:

Covidien plc. (COV), 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.

On Jun 30, 2013, Covidien separated its Pharmaceuticals business (Mallinckrodt) into a standalone company to become a core developer of medical devices. 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.

Covidien has two operating segments Medical Devices (roughly 85% of total sales in the first nine months of fiscal 2014) and Medical Supplies (15%). The company serves customers across 140 countries and markets its products to hospitals, surgi-centers, long-term care facilities and imaging centers and throughout the world.

The Medical Devices segment develops and markets a broad spectrum of endomechanical instruments (including laparoscopic instrument and surgical staplers), soft tissue repair products (including for sutures, mesh and hernia repair), energy-based instruments such as vessel sealing and ablation products, pulse oximeters and monitors, airway and ventilation products, vascular compression devices, needles and syringes, sharp safety products and other medical device products. The division offers products to physicians, nurses, materials managers, group purchasing organizations and governmental health care authorities.

In an effort to expand its Medical Devices segment, the company acquired a number of entities. Recently, in Jan 2013, Covidien completed the acquisition of Fremont, Calif.-based medical device company, CV Ingenuity to expand its Vascular business. CV Ingenuity specializes in the production of devices used for the treatment of peripheral arterial disease (PAD). Its product offerings are utilized to heal natural vessels, clear vascular blockages and prevent restenosis. The company's key product, a Drug Coated Balloon (DCB) platform with a unique tunable rapid-release system, is still in the investigational phase. Further, in Feb, 2013, Covidien acquired Nfocus Neuromedical, Inc. (Nfocus) for $72 million to expand its vascular product portfolio.

The Medical Supplies segment offers nursing care products, including incontinence and wound care products medical surgical products, such as operating room supply products and related accessories, electrodes, and chart paper product lines SharpSafety Products including needles, syringes and sharps disposal products original equipment manufacturer (OEM) products, which include medical supplies, such as needles and syringes.


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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 The NASDAQ OMX Group, Inc.



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