Health care products major
Covidien plc
(
COV
) is scheduled to release its third-quarter fiscal 2012 results
before trading begins on Thursday, July 26. Analysts polled by
Zacks are currently looking for earnings per share of $1.06 on
average for the quarter, representing an estimated year-over-year
growth of 4.64%. The current corresponding Zacks Consensus Estimate
for sales is $3,012 million.
With respect to earnings surprises, Covidien has consistently
outperformed the Zacks Consensus Estimate in the preceding four
quarters and we expect this trend to continue in the third quarter.
The company has delivered an average positive earnings surprise of
5.21% over the past four quarters, implying that it has beaten the
Zacks Consensus Estimate by that measure.
Second Quarter Revisited
Covidien's second quarter adjusted earnings per share (from
continuing operation) of $1.05 outperformed the Zacks Consensus
Estimate by 2 cents. Profit (from continuing operation) increased
7% year over year on the back of healthy performance of its core
Medical Devices division.
Revenues for the quarter rose 5% year over year to $2,946 million,
beating the Zacks Consensus Estimate of $2,894 million. Currency
exchange rate negatively impacted quarterly revenue by 1%. Sales
benefited from market share gains, new product rollouts and strong
execution.
Medical Devices sales climbed 7% year over year to $2,004 million
in the quarter, led by double-digit growth across Vascular and
Energy Devices product-lines with acquisitions, new products and
higher volume contributing to growth.
Revenues from Covidien's Pharma segment rose 4% to $508 million.
This growth was primarily fueled by robust gains in the Specialty
Pharmaceuticals and Radiopharmaceuticals businesses.
Sales from Medical Supplies segment were virtually flat year over
year at $434 million in the second quarter as higher sales of
medical surgical and Original Equipment Manufacturer ("OEM")
products were offset by lower revenues from SharpSafety and nursing
offerings.
Estimate Revisions Trend
Agreement
Estimates for the third quarter elicit limited action. Out of the
16 analysts currently covering the stock, none have made any
revision over the past week. Over the past month, 1 analyst has
raised his/her estimate while 2 have made downward revisions.
For fiscal 2012, no analyst (out of 18) has raised or lowered
his/her estimate over the last 7 days. However, there has been a
downswing in estimates over the past 30 days with 4 analysts having
chopped their forecasts with no reverse movements.
Magnitude
Given the relative lack of revision, estimates for the third
quarter and fiscal 2012 remained static over the last 7 and 30 days
at $1.06 and $4.30 per share, respectively. However, we remain
concerned about the tepid U.S. health services industry and the
soft European economy, which has led to fluctuating share prices.
Our View
Covidien is a leading global health care products company with a
rich history of developing and manufacturing high-quality products
in a cost-effective manner. The company boasts of a well
diversified product and technology portfolio. Covidien's larger
Medical Device unit overlaps with the business of its competitors
like
Becton Dickinson
(
BDX
) and
C.R. Bard
(
BCR
).
Covidien is expanding its footprint in emerging markets, notably in
Asia and Latin America, and boosting market share in core segments
through investments in sales and marketing infrastructure. The
company is on an acquisition spree and scooped up companies like
BARRX, Newport Medical Instruments, superDimension, PolyTouch
Medical in 2012 alone. Recently, it completed its acquisition of
Israel-based medical devices firm Oridion Systems Ltd. in late June
2012 to expand its foothold in emerging markets.
Mallinckrodt, the Pharmaceuticals business of Covidien teamed up
with
Horizon Pharma, Inc.
(
HZNP
) to promote DUEXIS in the U.S in the quarter. It also agreed to
co-endorse a prescription medicine called the Sumavel DosePro for
Zogenix Inc.
(
ZGNX
) in the U.S. Management at Covidien believes that the co-promotion
agreements represent a key opportunity for its pharmaceuticals
business as Mallinckrodt prepares to spin-off next year, as
announced in December 2011.
Moreover, Covidien continues to roll out new products and
technologies, focusing on faster-growing products and markets and
broadening its product range through acquisitions and strategic
collaborations. In May, Covidien launched two products viz. the
HALO90 ULTRA Ablation Catheter in the U.S. and Europe and the Endo
GIA Radial Reload aided with Tri-Staple technology. In June, the
company introduced the Nellcor SpO2 in selected regions for
treatment of respiratory ailments and also launched the world's
first knotless suturing device named V-Loc.
Covidien is well placed to achieve its long-term revenue and
earnings growth targets based on its attractive fundamentals,
effective execution, new product cycle, synergies of acquisitions
and expansion into emerging markets. Moreover, its share buyback
initiative is accretive to earnings.
However, we are concerned about intense competition, weakening
Euro, reimbursement uncertainty and the sustained pricing and
procedure volume pressure, which may weigh on the company's results
in fiscal 2012. Our Neutral recommendation on the stock carries a
short-term Zacks #4 Rank (Sell).
BARD C R INC (BCR): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis
Report
COVIDIEN PLC (COV): Free Stock Analysis Report
HORIZON PHARMA (HZNP): Free Stock Analysis
Report
ZOGENIX INC (ZGNX): Free Stock Analysis Report
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