We reaffirm our Outperform rating on The Cooper Companies (COO) following its healthy second-quarter fiscal 2011 results. Earnings beat the Zacks Consensus Estimate while profit increased greatly year over year. Industry outlook has improved with an expectation of rising utilization in emerging nations and a higher proportion of sales of value-added lenses.
Cooper proves to be a turnaround story based on rationalization of plants and better execution. It remains a leader in torics. Clear milestones for new product launches give scope for gains going forward. Recently, raised guidance for the fiscal year may yet prove conservative given room for further margin expansion.
Cooper has reduced debt with improved free cash flow, which opens up room for tuck-in acquisitions on a geographic basis. However, capital markets are weak with competition from large players.
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