On Dec 5, Zacks Investment Research downgraded The Cooper Companies Inc COO to a Zacks Rank #5 (Strong Sell). The downgrade reflects dismal fourth-quarter 2015 results, unimpressive outlook and growing near-term headwinds.
Why the Downgrade?
The Cooper Companies reported adjusted earnings of $2.00 per share that missed the Zacks Consensus Estimate by a dime. However, earnings climbed 2.6% year over year on margin expansion.
Revenues fell 2.7% year over year to $455.5 million and also lagged the Zacks Consensus Estimate of $473 million. The year-over-year decline was primarily attributed to weak performance by the CooperVision (CVI) and CooperSurgical (CSI) segments.
The Cooper Companies’ fiscal 2016 guidance failed to impress us. The company forecasts total revenues in the range of $1.83–$1.87 billion as compared to almost $1.8 billion reported in fiscal 2015. The soft revenue growth projection is based on 6% constant currency growth in CVI’s sales and 2.5% improvement in CSI sales.
The Cooper Companies’ initial fiscal 2016 projection for adjusted earnings was pegged at $7.60–$7.90, reflecting year-over-year growth of 10%–14%. This guidance took a negative foreign exchange rate impact of 58 cents per share into consideration.
We are concerned about the deterioration in the flagship contact lens business. Intensifying competition from J&J’s newly launched one-day siliconized gel lens is likely to hurt the company’s daily silicone hydrogel sales.
Moreover, unfavorable foreign exchange rate continues to be a major headwind. The Sauflon integration disruption in Europe is expected to hurt results in the first quarter of fiscal 2016.
Estimate Revisions
The Zacks Consensus Estimate for fiscal 2016 contracted almost 7.7% (65 cents) to $7.81 per share over the last 7 days. Similarly, for fiscal 2017, the Zacks Consensus Estimate declined 4.8% (46 cents) to $9.08 per share over the same time frame.
Stocks to Consider
One may consider some better-ranked players in the industry like Cardinal Health CAH, DENTSPLY International XRAY and AmerisourceBergen ABC. All the three stocks carry a Zacks Rank #2 (Buy).
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