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

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Summary:
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 $111.00.


Overview:

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, 2013.

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 care authorities.

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 products.

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.


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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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