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The Cooper Companies Inc (COO): Zacks Rank Buy

Jared Levy

Cooper Companies (COO)

We are in the midst of a major overhaul in healthcare.  In the coming years, millions more Americans will be receiving care and will need both providers of care as well as devices that make care more efficient and less costly. 

The Cooper Companies, through its two business units, CooperVision and CooperSurgical are leading the way in both vision and women’s’ healthcare on their own.  They stand to benefit from an increase in customers and heavier use of their products in both divisions as the US expands healthcare coverage for all Americans.    

Company Description & Developments Cooper’s two divisions are both market leaders in their respective areas.  CooperVision is one of the world’s leading manufacturers of soft contact lenses which are marketed under three different brand names; Avaira, Biofinity and Proclear.  CooperVision’s lenses are used in patients with specific needs such as astigmatism, presbyobia and ocular dryness.  As the third largest seller of contact lenses in the world, the Vision segment of Cooper represented roughly 85% of its overall revenue. 

On November 15th, Cooper recalled 600,000 Avaira contact lenses, sending shares sharply lower. The stock has since recovered and continued to rally above where they traded prior to the recall.  In December there were several class action lawsuits that were filed against Cooper by shareholders related to the recall. 

When they reported Q4 earnings in December, the company far exceeded estimates and offered strong guidance moving forward.  The recall forced a onetime charge of 9 million in the quarter.

The CooperSurgical side is focused on the manufacture and sale of medical devices in the women’s health arena.  Their products address everything from general examination to bone densitometry to Obstetrics and Neonatal care.  The bulk of their surgical business is located in the US, but the company is looking to expand its global reach over the coming years.

Women’s healthcare is targeted to grow at 6% per annum and unlike the contact lenses business is closely correlated with economic health. Financial Profile Cooper is a small to mid-cap (3.5 billion) company that is trading at about 16 times trailing earnings (P/E).  Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 14 with no change in price from these levels 12 months from today.   The stock is also throwing off a small dividend with a yield of .08%.

Cooper hit the Zacks Rank 1 Strong Buy list on the 12th of January. 

The medical device company reported a quarterly sales increase of 2.7% at their last earnings report.  The company saw a jump of 15% in sales year over year with total sales of roughly 1.3 billion in FY2011.  COO saw earnings growth of about 40% in the same period.  Cooper is expected to earn $4.91 in FY2012 according to the Zacks Consensus Estimate. 

Earnings Estimates We saw at least one analyst who covers Cooper increase their estimates over the past 30 days, for the current and next quarter as well as FY2012 and FY2013.  Cooper Companies will report Q4 (2011) results on February 23rd.

Expectations are for Cooper to generate $1.02 in income this quarter.  Of the 8 analysts who cover COO, the consensus is for the company to grow earnings by 9% in FY2012 and about the same (8.85%) in FY2013.  In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago from current quarter, out to FY2013.  This can be viewed as bullish action on the analysts’ part.

Cooper beat estimates last quarter by 21% and has managed to exceed consensus estimates for the past year by an average of about 15.5%.  In the past 12 months, the stock has responded well after earnings releases. 

Market Performance & Technicals Cooper has been on a tear since the recall was announced in November and the stock hit an intra-day low of $52.  After a quick bounce and then a bit of struggle in mid December on news of class action lawsuits, COO quickly gapped back above $60 and consolidated just under its 200 day moving average for a couple weeks. 

Shares broke higher a couple days ago as the stock eclipsed that average and seem to be adding momentum here.

In the near term, investors should be aware that the stock is in an overbought state being that it has exceeded its upper Bollinger Band. 

COO remains roughly $10 below its 52 week high of $84.20, which was made back in September 2011.  The 200 day moving average of $72.00 will be the first level of short term support, with the 50 day average of about $67 as the next level below.

Despite a major recall, Cooper has outpaced the S&P 500 by almost 25% over the past year and 3.5% over the past 12 weeks.  For now, Cooper Companies is running with the bulls.

  

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

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