International medical technology major,
) is scheduled to release its fourth-quarter fiscal 2012 results
before trading begins on Friday, November 9. Analysts polled by
Zacks are currently expecting earnings per share of $1 on average
for the quarter, representing an estimated year-over-year decline
of 7.80%. The current corresponding Zacks Consensus Estimate for
sales is $2,992 million.
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For fiscal 2012, analysts polled by Zacks currently anticipate
earnings per share of $4.24 on average, representing an estimated
year-over-year growth of 6.90%. The current corresponding Zacks
Consensus Estimate for sales is $11,842 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 fourth
quarter. The company has delivered an average positive earnings
surprise of 3.86% over the past four quarters, implying that it
has surpassed the Zacks Consensus Estimate by that measure.
Third Quarter Revisited
Covidien's third quarter adjusted earnings per share (from
continuing operation) of $1.07 outperformed the Zacks Consensus
Estimate by a penny. Profit (from continuing operation) decreased
15% year over year to $453 million, due to higher income
tax-related expenses and currency fluctuations.
Revenues for the third quarter of 2012 grew 3% year over year to
$3,007 million. However, sales were lower than the Zacks
Consensus Estimate of $3,012 million. Further, currency exchange
rate negatively impacted quarterly revenue by 3%.
Revenues from the larger Medical Devices segment increased 4%
year over year to $2,063 million, driven by double-digit growth
across Vascular and Energy Devices product lines. New products
and higher volume contributed to growth.
Revenues from Covidien's Pharma segment remained flat year over
year at $501 million. Robust gains in the Specialty
Pharmaceuticals business were offset by lower Contrast Product
Sales from Medical Supplies segment were virtually flat year over
year at $443 million in the third quarter as higher sales of
Medical Surgical and Nursing Care products were offset by lower
revenues from SharpSafety and Original Equipment Manufacturing
Estimate Revisions Trend
Estimates for the fourth quarter portray lack of action. There
were no estimate revisions (out of 14 estimates) over the past
week or month.
Similarly, for fiscal 2012, there were no estimate revisions (out
of 17 estimates) over the last 7 and 30 days.
Given the relative lack of revisions, estimates for the fourth
quarter and fiscal 2012 remained static over the last 7 and 30
days at $1 and $4.24 per share, respectively.
Covidien is a leading global health care products company with an
impressive 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
Johnson & Johnson
Covidien continues to expand both organically as well as
inorganically. The company is adequately placed to achieve its
long-term revenue and earnings growth targets based on its
attractive fundamentals, strategic acquisitions, effective
execution, new product cycle and expansion into emerging markets.
The company is also enhancing shareholders' value through
dividends and share repurchases, leveraging healthy free cash
flows and strong earnings power.
Moreover, Covidien's recent acquisitions are in tandem with its
strategy to invest in products that can offer global competitive
advantage. In October, Covidien completed the acquisition of CNS
Therapeutics, Inc., a St. Paul Minnesota-based specialty
pharmaceutical company. The inclusion of CNS Therapeutic's
marketed products along with its solid product pipeline should
boost Mallinckrodt's pain management branded product portfolio.
However, Covidien faces stiff competition and remains exposed to
pricing, utilization headwinds, along with acquisition risks. We
remain concerned about the tepid U.S. health services industry
and the soft European economy, which has led to fluctuating share
prices. Moreover, the company has been plagued by product
recalls. Also, foreign exchange translation is expected to dampen
We expect the company to offer some visibility on the current
macroeconomic trends and also provide an update about its product
pipeline and acquisition synergies. We currently have a long-term
'Neutral' recommendation on the stock, which carries a short-term
Zacks #3 Rank (Hold).