Covidien Plans Cost-Cutting but Stock Down - Analyst Blog

Covidien plc ( COV ) tried to soothe investors again by revealing that it would reduce costs by outsourcing services to low-cost regions and consolidating manufacturing and distribution centers.

However, the news failed to impress investors as depicted by a 0.7% fall in stock at the beginning of the week. Investors' confidence seems to have taken a back seat given the delay in realizing savings from the restructuring actions.

Covidien expects to generate savings of $250 million to $300 million annually from the cost reduction measures from the beginning of fiscal 2014. Savings are expected to accelerate in fiscal 2015.

COV anticipates the majority of the restructuring measures to be completed by the end of fiscal 2018. The company expects to incur charges of $350 million-$450 million due to the restructuring, mostly by the end of fiscal 2018.

Recently, the manufacturer of medical devices and supplies has declared a 23% rise in dividend to 32 cents from 26 cents per share, which is payable on Nov 5 to shareholders of record as on Oct 10, 2013.

Covidien follows a policy of continuous rise in dividends in order to soothe its investors. The company raised its quarterly dividend by 15.6% to 26 cents per share for fiscal 2013 from 22.5 cents in fiscal 2012.

The recent raise in dividend push the annualized dividend payment by 23.1% to $1.28 per share from $1.04 in fiscal 2013. COV plans to make its dividend payments to be at least 35% of its adjusted earnings per share. This means an annual dividend of $1.49 or 37 cents per quarter given its 2012-adjusted earnings of $4.26 per share.

Covidien posted flat adjusted earnings per share from continuing operations of 91 cents for the third quarter of fiscal 2013, on a year over year basis. However, earnings beat the Zacks Consensus Estimate by a penny.

Revenues in the quarter increased 3% (up 5% in constant currency) to $2,578 million, driven by higher sales in the Medical Devices segment. Revenues were slightly below the Zacks Consensus Estimate of $2,587 million.

Currently, COV carries a Zacks Rank #3 (Hold). While we remain on the sidelines regarding the company, other companies that are performing well include Alere Inc. ( ALR ), with a Zacks Rank #1 (Strong Buy), and Advaxis Inc. ( ADXS ) and Boston Scientific Corp. ( BSX ), both with a Zacks Rank #2 (Buy).

ADVAXIS INC (ADXS): Free Stock Analysis Report

ALERE INC (ALR): Free Stock Analysis Report

BOSTON SCIENTIF (BSX): Free Stock Analysis Report

COVIDIEN PLC (COV): 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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