Covidien Expands Biz on Twin Deals - Analyst Blog

In a bid to expand its global footprint, Covidien plc ( COV ) has completed two major transactions - one in Brazil and the other in China. The terms of the deal were however, undisclosed.

However, no significant impact from the two deals is expected on Covidien's 2014 revenues and earnings. The company's shares fell 1.4% in the trading session following the news release. The stock has raked in a one-year return of roughly 30% and is up around 2.3% so far this year.

In Brazil, Covidien purchased WEM Equipamentos Eletronicos Ltda., a privately held manufacturer of electrosurgical generators, disposables and accessories. Covidien has acquired all of WEM and plans to manage the business as part of its Brazilian operations.

Currently, Brazil's balanced mix of stable economic growth and environmental sustainability, combined with programs for effective distribution of wealth, yields the perfect conditions needed for a business to flourish. Moreover, with the health care system improving and becoming more accessible in the country, demand for medical devices will also rise significantly.

On the other hand, China is one of the most attractive among the fast growing emerging markets. Improvements in infrastructure, broadening of insurance coverage and significant support for innovation act as catalysts that stimulate growth for companies like Covidien in the Chinese market.

Observing this, Covidien has agreed to partner with Changzhou Kangdi Medical Stapler Co., Ltd., a manufacturer of open stapler products based in the Jiangsu Province. Covidien and Kangdi have forged a shared ownership agreement with the former holding majority control. It will operate as a separate joint venture.

Through the two deals, Covidien plans to steadily increase its presence in the value segment markets that cater to hospitals engaged in serving patients who seek affordable healthcare solutions.

Both the transactions promise Covidien reduced manufacturing costs and extensive support from the complementary channels. Additionally, local brands should help Covidien meet the affordability needs of the value segment in both the countries. The strong intent to cater to the underserved segment is consistent with the company's vision to usher in better patient outcomes through affordable healthcare solutions.

The dynamic medical devices industry has unlimited opportunity for growth worldwide, particularly in the emerging economies like Brazil, China and India. These countries are expected to ring in the next wave of growth in the market for healthcare products.

Currently, Covidien carries a Zacks Rank #2 (Buy).

Investors interested in the medical industry can also look at stocks like Cardiovascular Systems Inc. ( CSII ), Mead Johnson Nutrition Company ( MJN ) and CareFusion Corporation ( CFN ). While CSII and MJN carry a Zacks Rank #1 (Strong Buy), CFN has the same Zacks Rank as Covidien.

CAREFUSION CORP (CFN): Free Stock Analysis Report

COVIDIEN PLC (COV): Free Stock Analysis Report

CARDIOVASCLR SY (CSII): Free Stock Analysis Report

MEAD JOHNSON NU (MJN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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