The Cooper Companies, Inc. COO is well-poised for growth, backed by strong prospects in both CooperVision (CVI) and CooperSurgical (CSI) business segments. The company’s acquisitions to complement its portfolio buoy optimism. However, unfavorable currency movements and rising costs continue to hurt the top line and margins, respectively.
Shares of the Zacks Rank #3 (Hold) company have lost 24.6% compared with the industry's decline of 16.4% so far this year. The S&P 500 Index has declined 18.2% in the same time frame.
Cooper Companies — with a market capitalization of $15.52 billion — is a specialty medical device company operating on a global basis. The company’s earnings are estimated to improve 11% over the next five years. The company missed earnings estimates in three of the trailing four quarters and beat once, the average negative surprise being 0.70%.
Image Source: Zacks Investment Research
What's Driving Its Performance?
Cooper Companies maintained its market-leading position in specialty lenses, backed by highly exclusive products of Biofinity and Clariti, and growing products of MyDay and MiSight. In fact, the company's flagship silicone hydrogel lenses are expected to deliver strong sales in the coming quarters.
In the fiscal third quarter of 2022, the company witnessed substantial growth across CVI’s Toric, Multifocal, single-use sphere and non-single-use sphere subunits. It also experienced an improvement in sales on a geographic basis — with the Americas, EMEA and the Asia Pacific exhibiting strength so far in 2022.
The CVI segment continued to display solid performance in the fiscal third quarter, with its revenues rising 10% at constant exchange rate (CER) and 2% on a reported basis to $566.3 million. Per management, strength in silicone hydrogel lenses contributed to the segmental uptick. CVI revenues are estimated to be in the range of $2.24-$2.25 billion (organic growth of 11-12%) in fiscal 2022.
Cooper Companies is well positioned to benefit from the expanding CSI product portfolio as well. Per the fiscal third-quarter 2022 earnings call, CooperSurgical witnessed a solid quarter with revenue growth across two focus areas — fertility, and office and surgical products. With respect to fertility, revenues surged 34% year over year to $114.4 million, reflecting sustained solid performance. Sales of office and surgical products surged 35% to $165.4 million.
CSI revenues are expected to be within $1.055-$1.064 billion in fiscal 2022, implying organic growth of 7-8%.
Acquisitions to Drive Growth
In December 2021, Cooper Companies completed the acquisition of privately held Generate Life Sciences — a leading provider of donor egg and sperm for fertility treatments, fertility cryopreservation services and newborn stem cell storage (cord blood & cord tissue). The deal is anticipated to add approximately 30 cents to COO’s adjusted earnings in the calendar year 2022.
Another acquisition is currently under review. In April, it entered into an asset purchase agreement to acquire Cook Medical’s Reproductive Health business. The acquisition will add minimally invasive medical devices focused on the fertility, obstetrics and gynecology markets. The deal is likely to be completed by the end of this year. The addition of Cook Medical’s Reproductive Health business is likely to be accretive to COO’s adjusted earnings by approximately 60 cents in the first year, following the completion of the acquisition.
Both these deals helped Cooper Companies to diversify its businesses to include fertility-related medical devices.
In March, the company formed a joint venture — SightGlass Vision — with another global vision care leader, EssilorLuxottica to accelerate the commercialization of novel spectacle lens technologies to expand the myopia management category.
What's Weighing on the Stock?
Cooper Companies generates a significant portion of its revenues in foreign currencies. Fluctuations in foreign exchange rates may significantly mar its overseas revenues. Moreover, an increase in selling, general and administrative expenses is concerning. Contraction in both gross and operating margins is disappointing.
The Cooper Companies, Inc. Price
The Cooper Companies, Inc. price | The Cooper Companies, Inc. Quote
The Zacks Consensus Estimate for the company's fiscal 2022 revenues is pegged at $3.30 billion, suggesting growth of 12.9% from the year-ago reported number, while adjusted earnings per share for the same period stands at $12.77, reflecting a decline of 3.6%.
Stocks to Consider
Some better-ranked stocks in the broader medical space are ShockWave Medical SWAV, AMN Healthcare Services AMN and McKesson MCK, all carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for ShockWave Medical’s earnings per share is stable at $2.57 for 2022 and rose from $3.42 to $3.56 for 2023 in the past 60 days. SWAV has gained 43.1% so far this year.
ShockWave Medical delivered an earnings surprise of 146.1%, on average, in the last four quarters.
Estimates for AMN Healthcare Services have improved from earnings of $11.26 to $11.43 for 2022 and $8.30 to $8.39 for 2023 in the past 60 days. AMN stock has declined 1.6% so far this year.
AMN Healthcare Services delivered an earnings surprise of 10.96%, on average, in the last four quarters.
McKesson’s earnings per share estimates have increased from $24.42 to $24.75 for fiscal 2023 and $26.04 to $26.40 for fiscal 2024 in the past 60 days. MCK has gained 55.2% so far this year.
McKesson delivered an earnings surprise of 4.79%, on average, in the last four quarters.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
McKesson Corporation (MCK) : Free Stock Analysis Report
The Cooper Companies, Inc. (COO) : Free Stock Analysis Report
AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report
ShockWave Medical, Inc. (SWAV) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research