Covidien Touches New 52-Week High - Analyst Blog

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Shares of Covidien plc ( COV ) hit a new 52-week high of $73.39 in mid-day trading on Mar 28 eventually closing at $72.50. In fact, shares of this Ireland-based medical products company have been gaining momentum since it reported better-than-expected fiscal first-quarter 2014 results on Jan 24.

Year to date, the company's share price has recorded a healthy return of 22.8%. The company's long-term estimated EPS growth rate is pegged at 10.2%. Alongside, in the fiscal first quarter, Covidien repurchased approximately 4.5 million ordinary shares, under the company's previously announced share buyback program.

Strong First-Quarter Performance

Covidien posted strong fiscal first-quarter results recording year-over-year increases both in revenues and adjusted earnings. Adjusted earnings per share were $1.00 in the quarter, beating the Zacks Consensus Estimate of 94 cents by 6.4%. Earnings also grew 3% year over year, driven by solid top-line growth, despite the unfavorable foreign exchange impact, the medical device tax and incremental investments in emerging markets.

Revenues grossed $2.64 billion, up 2.8% year over year, beating the Zacks Consensus Estimate by 1.4%. On a geographical basis, sales growth was impressive in the developed markets, particularly in the U.S. and Europe. Management considers this as a sign of improved market conditions and expects this momentum to continue for the rest of 2014. Organic sales growth also increased in the quarter by 5%.

On a segment basis, sales at Surgical Solutions increased 5.6% year over year to $1.26 billion. Operationally, higher sales were reported at Advanced Surgical, owing to double-digit quarterly sales growth of vessel sealing products and impressive gains from stapling products. Further, sales from Vascular Therapies grew 2.2% year over year to $425 million on the back of growth in chronic venous insufficiency products.

Sequentially, Covidien's adjusted gross margin improved 120 basis points (bps) primarily due to better manufacturing performance by the company's U.S. Medical Supplies business. In the first quarter, research and development (R&D) expenses grew 40 bps from the year-ago level, reflecting management's incremental investments in R&D to support future growth.

Subsequent to the earnings release, most of the earnings estimates were revised upward for fiscal 2014 and 2015. Over the last 90 days, the Zacks Consensus Estimate has risen 0.75% to $4.02 for fiscal 2014 and 1.4% to $4.49 for fiscal 2015.

Other Stocks to Consider

Covidien currently carries a Zacks Rank #3 (Hold). Other stocks worth a look in the medical industry are Enzymotec Ltd. ( ENZY ), SurModics, Inc. ( SRDX ) and Meridian Bioscience, Inc. ( VIVO ). While Enzymotec carries a Zacks Rank #1 (Strong Buy), SurModics and Meridian carry a Zacks Rank #2 (Buy).

COVIDIEN PLC (COV): Free Stock Analysis Report

ENZYMOTEC LTD (ENZY): Free Stock Analysis Report

SURMODICS (SRDX): Free Stock Analysis Report

MERIDIAN BIOSCI (VIVO): 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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