Covidien plc.
(
COV
), a leading health care products company, recently announced a 16%
hike in its quarterly dividend to 26 cents from the prior payout of
22.5 cents. This raises the annual dividend to $1.04 per share from
90 cents per share. The revised quarterly dividend is payable on
November 5, 2012, to shareholders of record as on October 11, 2012.
The dividend hike reflects Covidien's commitment to deliver
incremental returns to investors leveraging a solid free cash flow
and strong earnings. The company's previous dividend increase was
in October 2011, when it raised the quarterly payout by 12.5% to
22.5 cents a share from 20 cents.
Recently, Covidien raised its commitment to return more than 50% of
its free cash flow (earlier 25% - 40%) to its shareholders via
dividends and share repurchases. In the last one year, the company
has returned almost 83% of its free cash flow to its shareholders,
which is well above the targeted value.
Covidien has a strong liquidity position to support the dividend
increase as well as the higher payout ratio. The company ended the
third quarter of fiscal 2012 with cash and cash equivalents of
$1,935 million. It also generated $1,637 million in cash from
operations in the last nine months.
Covidien continues to maintain a streak of positive earnings
surprises having beaten the Zacks Consensus Estimate in each of the
last four quarters. The company reported third quarter 2012
earnings of $1.07 per share, ahead of the Zacks Consensus Estimate
by a penny. Results inched up 5.9% from the prior-year quarter
earnings of $1.01 per share. Total revenue was $3,007 million,
improving 3% year over year but missing the Zacks Consensus
Estimate of $3,012 million.
Recently, Covidien provided its financial outlook for fiscal 2013.
It expects net revenues to grow by 3% to 6% year over year for
fiscal 2013. The Zacks Consensus Estimate for EPS and revenues is
$4.46 and $12.3 billion, respectively.
Covidien remains committed to rolling out new products and
technologies, focusing on emerging markets, and boosting market
share in core segments through investments in sales and marketing
infrastructure. Management expects that focus on product
innovation; aggressive portfolio management and optimal spending on
future investments will yield positive results in the long run.
However, sustained pricing/procedure volume pressure, fluctuating
foreign exchange rates, a sluggish U.S. and European economy
represent major headwinds. We currently have a Neutral
recommendation on Covidien, which carries a short-term Zacks #3
Rank (Hold rating).
Covidien is a leading developer, manufacturer and distributor of
medical devices and services on a global scale. Its business
segments overlap with the business of its competitors such as
Becton, Dickinson and Company
(
BDX
),
Johnson and Johnson
(
JNJ
) and
CR Bard Inc.
(
BCR
) among others.
BARD C R INC (BCR): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis
Report
COVIDIEN PLC (COV): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis
Report
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