On Aug 13, we upgraded medical devices company,
) to Neutral from Underperform based on its improved
Why the Upgrade?
Covidien posted adjusted earnings per share from continuing
operations of 91 cents for the third quarter of fiscal 2013 (flat
year over year), which beat the Zacks Consensus Estimate by a
penny. Revenues increased 3% (up 5% in constant currency) to
$2,578 million but were slightly below the Zacks Consensus
Estimate of $2,587 million.
Over the past four quarters, this Zacks Rank #3 (Hold) stock has
delivered an average surprise of 2.18%. The Zacks Consensus
Estimate for fiscal 2013 earnings has gone up 0.5% to $3.71 per
share in the last 30 days. However, the same has declined by 0.7%
for fiscal 2014.
We believe that improvement in the core Medical Device segment,
despite a soft underlying market, has driven investor confidence.
Revenues from the larger Medical Devices segment grew 4% (up 6%
in constant currency) to $2,139 million in the third quarter of
fiscal 2013. The division is benefiting from new products and
Further, the successful spin-off of its Pharma unit should help
the company to focus on its high-margin surgical products
portfolio and execute growth plans. Additionally, gains from
acquisitions and expansion into emerging markets should propel
However, the company remains exposed to pricing/volume and
foreign exchange headwinds and faces stiff competition. Moreover,
the medical device tax and higher investment-related expenses are
likely to pressurize margins going forward.
Other Stocks to Consider
Other medical stocks such as
), with a Zacks Rank #1 (Strong Buy) along with
), carrying a Zacks Rank #2 (Buy), are worth considering.
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