Cooper Remains at Outperform - Analyst Blog

We reiterate our Outperform rating on eye-care and surgical products maker Cooper Companies Inc (COO) following its strong fourth-quarter and fiscal 2010 results and management's upbeat guidance. Revenues and earnings for the quarter and fiscal year beat the Zacks Consensus Estimate, boosted by healthy growth across the board.

The California-based company posted double-digit growth in its CooperVision (“CVI”) eye-care division and CooperSurgical (“CSI”) surgical unit in the fourth quarter. Cooper continues to gain market share in its CVI business. Moreover, the company remains successful in expanding margins on the back of manufacturing efficiency gains at its CVI and CSI units.

Cooper has issued a buoyant outlook for fiscal 2011 with opportunities for sustained top line and margin expansion. The company is committed to better operational execution while, on the financial side, is expected to deliver solid free cash flows in 2011. Moreover, Cooper has deployed a significant portion of its free cash flows to reduce its debt in fiscal 2010 and is expected to continue the same moving forward.

Cooper is a global medical products company specializing in a wide range of contact lenses for the vision correction market. The company is a leader in the high-margin toric lens market and benefits from strong demand for its Biofinity toric lenses. 

The worldwide contact lens market is poised for accelerated growth. User preferences are shifting from low-feature commodity lenses to more expensive single-use and specialty lenses including the higher oxygen permeable lenses (silicone hydrogels). Higher prices, international expansion and increase in contact lens utilization rates in developed markets (given the declining drop-out rates) will act as tailwinds for market expansion.

However, Cooper faces significant competition across each of its product segments from well-established contact lens manufacturers such as Johnson & Johnson (JNJ) and Novartis (NVS). Depressed levels of consumer spending have exacerbated competitive pressures on the company.

Nevertheless, Cooper's healthy margin would be sustainable driven by increased manufacturing capacity utilization and further leverage of the high-volume plants in the U.K. and Puerto Rico. Cooper currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy” recommendation.

 
COOPER COS (COO): Free Stock Analysis Report
 
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