We reiterate our Outperform recommendation for The Cooper Companies Inc (COO), the number three player in the $6 billion global contact lens industry, based on its second-quarter fiscal 2011 (ended April 30) financial results. Earnings for the quarter of $1.02 sailed passed the Zacks Consensus Estimate of 93 cents while revenues of $325 million easily beat the Zacks Consensus Estimate of $315 million.
Our bullishness is buttressed by the company’s pipeline, with defined timelines for rolling out the Biofinity multifocal lens in the US/European markets as well as launching the Biofinity toric in Japan. The turnaround of the company was spearheaded by favorable results for consecutive quarters. Following its recent second quarter results, Cooper revised its guidance upward for the fiscal.
Revenues have been on the upswing on account of rising sales of silicone hydrogel and value-added lenses. Cooper has successfully reined in its manufacturing costs through rationalization of plants, notably its facility at Norfolk. Improved execution is expected to raise operating margin to 18.5% in fiscal 2011 from 17.9% during the first half of the current fiscal.
Earnings per share are expected to increase within a band of 29% to 34% for fiscal 2011, higher than the previous range of 19% to 26%. Free cash flow projection has been nudged up to a range of $190 million to $210 million.
Growing cash flow has enabled the company to de-leverage its balance sheet, while creating room for tuck-in acquisitions. Cooper may choose to takeover more distributors in emerging markets where lens utilization is expected to grow.
Cooper is a global medical products company specializing in a wide range of contact lenses for the vision correction market with a smaller strategic business unit for women’s health.
Cooper, the last remaining stand-alone lens entity, faces stiff competition from well established contact lens manufacturers such as Novartis (NVS) and Johnson & Johnson (JNJ). Depressed levels of consumer spending have heightened the competitive pressures on the company. Our Outperform recommendation on the stock is supported by a short-term Zacks #2 Rank (Buy).
COOPER COS (COO): Free Stock Analysis Report
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