) has revealed its guidance for fiscal 2013 after adjusting for
the spin-off of the Pharmaceutical business, which is expected to
take place at the end of third quarter of fiscal 2013. It has
also provided a separate guidance for Mallinckrodt plc.
For fiscal 2013, Covidien expects net revenue to grow by 4% to 5%
(earlier 5% to 8%) year over year. The company's core Medical
Devices segment is expected to be up 4%-6% (earlier 5%-8%) and
the Medical Supplies business is expected to grow 1%-2% (earlier
1%-3%) year over year.
Further, adjusted operating margin (excluding one-time items) is
anticipated in the range of 22.0%-22.5% (earlier 22%-23%).
Effective tax rate is expected in the band of 17.0% and 17.5%
(earlier 17.5% and 18.5%) for fiscal 2013. Average shares
outstanding are expected between 470 million and 475 million.
Covidien has lowered its guidance due to unfavorable foreign
currency fluctuations. Management believes that once the impact
of the medical device tax and unfavorable foreign exchange rate
is accounted into the financials after a year, Covidien will
likely deliver better top-line performance and experience higher
earnings growth for 2014.
In addition to the guidance, Covidien has released historical
financial statements from fiscal 2010 to 2012 and the first
quarter of fiscal 2013, after adjusting for the forthcoming
In a separate press release, Covidien provided the first
full-year guidance for Mallinckrodt, which is expected to operate
as a separate, publicly traded company from mid-2013. For fiscal
2013, the Pharmaceuticals division is anticipated to grow 7%-11%,
on the back of new products.
Although adverse foreign exchange translation is likely to hamper
growth at Covidien in fiscal 2013, we believe that this
international healthcare major will be able to maintain its
growth momentum in the long run. The company is adequately placed
to achieve its long-term revenues and earnings growth targets
based on its attractive fundamentals, strategic R&D
investment, effective execution, new product cycle and expansion
into emerging markets.
The company had announced its decision to divest this unit in Dec
2011 in an effort to focus on its high-margin surgical product
portfolio. However, we are cognizant regarding the
divestment-related risks associated with the spin-off.
In Jan 2013,
) also divested its research-based pharmaceuticals business into
a new company,
) for the same reason as Covidien. Since its inception, AbbVie's
share price increased almost 30%, which is encouraging. ABT has
also performed well following the divestment, with share price
increasing 18%, year-to-date.
Covidien currently carries a Zacks Rank #3 (Hold). While we
remain on the sidelines regarding Covidien due to a difficult
healthcare environment, medical products company,
), carrying a Zacks Rank #1 (Strong Buy), warrants a look.
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