KeyBanc Bullish On Cooper Companies' Revenue Momentum, But Says Mix May Hurt Margins

While Cooper Companies Inc COO should be able to sustain its revenue growth momentum, despite changes in the competitive landscape, its gross margin may come under pressure due to mix shift and capacity investments, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Matthew Mishan maintained an Overweight rating on Cooper Companies, reducing the price target from $351 to $348.

The Thesis

The pullback in shares since Cooper Companies’ August earning call presents an entry opportunity into a company that has solid fundamentals and can weather an increase in competition, Mishan said in the note.

Recent meetings with management focused on the competitive landscape, with Alcon targeting a full commercial release of PRECISION1 Daily SiHy in the first quarter of 2020, Mishan mentioned. He added, however, that this would likely not have a significant image on Cooper Companies’ market share.

Cooper Companies’ MiSight is still awaiting FDA approval.

Even after an approval, management has indicated a gradual ramp as this product requires more physician training and education, the analyst said.

He reduced the EPS estimates for fiscal 2020 and 2021 from $13.32 to $13.20 and from $15.28 to $15.15, respectively, expressing concern around the company’s gross margin trajectory “as mix appears more skewed to lower margin MyDay, and new manufacturing lines may take time to run at higher levels of productivity.”

Price Action

Shares of Cooper Companies traded higher by 1.7% at $295.85 on Friday.

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