|
|
During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | AUGUST 24, 2004
 FOCUS STOCK By Cameron Lavey At Cooper, Growth Is in Sight [Page 2 of 2] FRAGMENTED MARKET. Cooper's CSI unit (20% of fiscal 2003 revenues), develops, manufactures, and markets medical devices, diagnostic products, and surgical instruments and accessories used primarily in gynecologist and obstetrician practices. During fiscal 2003, CSI completed two acquisitions: Prism Enterprise, which develops medical devices and disposable products for the obstetric, neonatal, and gynecological markets; and Avalon Medical, the U.S. distributor of the Filshie Clip (a device used to perform female sterilization). In fiscal 2004's first quarter, CSI acquired from SURx the rights to a product line to treat female stress incontinence. In the second quarter, CSI bought Milex Products, a manufacturer of obstetric and gynecologic products and services, for $26 million. The medical-device segment of the women's health-care market is still highly fragmented, in our view. CSI has grown at a compound rate of 23% over the past five years, largely due to selective acquisitions. We anticipate that the pace of deals will continue, coupled with low double-digit organic growth, and that CSI will continue to show strong top-line growth due to the depth of its product offerings. In addition, as it integrates acquisitions and realizes additional synergies, we expect margins to widen. SYNERGISTIC BOOST. We look for Cooper's revenues to grow about 20% in fiscal 2004, to about $493 million, on an 18% advance at CooperVision and a 25% increase at CooperSurgical. We see operating margins of 23% and EPS of $2.58. In fiscal 2005, we see revenues of approximately $936 million, which includes an estimated $378 million from Ocular Sciences, operating margins of 21%, and EPS of $3.30. As synergies from the Ocular acquisition are realized, we think that operating margins will return to prior levels and possibly trend slightly higher. Based on Standard & Poor's Core Earnings methodology, we estimate S&P Core EPS of $2.42 for fiscal 2004 and $3.15 for fiscal 2005. Our S&P Core EPS estimates include stock-based compensation expenses of about $4.6 million in fiscal 2004 and $5.3 million in fiscal 2005. Our fiscal 2004 S&P Core estimate also excludes an asset sale gain of $1.4 million and a loss on a settlement dispute of $365,000. In our opinion, the divergence between Cooper's operating and S&P Core EPS estimates is in line with similar health-care products companies that we cover. Our 12-month target price of $73 is supported by both our discounted cash-flow model and our peer-group analysis. We believe that Cooper will be able to meet our cash-flow growth assumptions as it increases market share and expands its geographic reach. Our discounted cash-flow model incorporates a weighted average cost of capital of 7%, 25% free cash flow growth in fiscal 2004 trending down to 4% in year 15, and terminal growth of 3%. Our target price implies that the stock will trade at about 22 times our fiscal 2005 EPS estimate of $3.30, resulting in a p-e-to-growth ratio of 1, below that of peers. GAINING SHARE. Risks to our target price and recommendation include the potential complexities in integrating the Ocular acquisition, as well as the possibility that the cost synergies won't be as large as expected. In addition, Cooper faces significant competition in the contact-lens and women's health-care markets from several larger, well established manufacturers. Rivals have recently launched new products that compete with Cooper's specialty contact lenses. Overall, we think Cooper will continue to gain market share in both its CooperVision and CooperSurgical business units. Favorable demographic trends and selective acquisitions should help drive sales and profit growth. The acquisition of Ocular Sciences will make Cooper the third-largest contact lens manufacturer, and we believe it could become the second-largest in the next few years. Given our view of promising growth prospects and attractive valuation, we recommend buying Cooper's shares.
 Analyst Lavey follows health-care products companies for Standard & Poor's Equity Research Services All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, Bloomberg L.P.Terms of Use | Privacy Notice |
Printer-Friendly Version
