Cooper Companies Earnings Preview: Double-Digit Revenue Growth Expected

Cooper Companies COO is scheduled to report fiscal fourth-quarter 2011 results tomorrow afternoon, December 8. Its profit fell in the third quarter, breaking a streak of three consecutive quarters of year-over-year profit increases. Investors will be looking for Cooper to return to earnings growth, as well as to continue its double-digit year-over-year percentage revenue growth over the past four quarters. But results could be affected by recent recalls of contact lenses. The analysts' forecast calls for Cooper to report that its per-share earnings increased 9.9% from the same quarter of last year to $1.21. That estimate is down a penny from 60 days ago. The consensus full-year estimate is $4.23 per share, an increase of 26.7%. Note that analysts have underestimated Cooper's earnings results in the past five quarters. Analysts also expect the company to report that revenues for the quarter rose 13.9% from a year ago to $356.9 million. Full-year revenues are expected to come to $1.3 billion, which would be a 14.7% increase. Looking ahead to the current quarter, revenues are so far expected to rise 8.4%, with EPS up 11.4% year over year. The Company Cooper Companies manufactures and markets health care products serving the vision care and women's health care markets worldwide. It operates through two business units: CooperVision is headquartered in Pleasanton, Calif., and CooperSurgical is headquartered in Trumbull, Conn. Cooper Companies was founded in 1980 and now has a market cap of $2.9 billion. During the three months that ended in October, the company voluntarily recalled of some Avaira Toric contact lenses, and later expanded the recall. This has more recently prompted the filing of class-action lawsuits. Performance The company has a long-term earnings per share growth forecast of 13.7% and its dividend yield is 0.1% The forward earnings multiple is less than the industry average P/E ratio, and the PEG ratio is less than the industry average as well. The operating margin is better than the industry average. The consensus recommendation of analysts who follow the stock is to buy it, and they have a mean price target on shares that is more than 17% higher than the current share price. The share price is about 21% lower than three months ago but still almost 12% higher than a year ago. It is far below the 50-day and 200-day moving averages. Over the past six months, the stock has underperformed Intuitive Surgical ISRG and the broader markets, but its performance has been largely in line with that of Boston Scientific BSX. Action Items: Bullish: Investors interested in exchange traded funds with a stake in Cooper Companies might want to consider the following trades:

• PowerShares Dynamic Healthcare PTH is about 17% higher than a recent 52-week low.
• First Trust Health Care AlphaDEX FXH is more than 12% higher than a recent 52-week low.
• SPDR S&P Health Care Equipment XHE is more than 8% higher than a recent 52-week low.

Bearish: Traders may want to consider these alternative positions in the same sector:

• Thoratec THOR is more than 21% higher than a year ago.
• Teleflex TFX is more than 21% higher than a year ago.
• Luminex LMNX is about 17% higher than a year ago.

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