Free Annual Reports
Cooper: A Growing Play On Eye Care
For investors who want to play any trends in eye health, pure plays are few and far between. Most are either small divisions of huge companies (Novartis' (NYSE:NVS) Ciba Vision), private (Bausch & Lomb), very small (ISTA Pharmaceuticals (Nasdaq:ISTA)), or not really involved in the medical side (Luxottica (NYSE:LUX)). That makes Cooper Companies (NYSE:COO) a pretty rare company, and the fact that it grows is a cherry on top of the sundae.
IN PICTURES: 5 Investing Statements That Make You Sound Stupid
A Strong End to the Year
Cooper posted a solid finish to its 2010 fiscal year. Revenue rose 11% to $313 million, surpassing the high end of what was a surprisingly tight range of estimates. The company's vision business (which is about 85% of the total) saw revenue growth of 10%, fueled at least in part by 88% growth in silicon hydrogel lenses. Its other business, surgical tools for the ob/gyn market, saw 14% reported growth.
Cooper also did a fine job with respect to generating profits. Gross margin improved nearly four full points, while operating profits jumped 56% from the year-ago period. Profitability was definitely helped by the surgical business, where segment gross profits jumped about 12 points from the year-ago period and the operating margin was well above the corporate average (28% vs. 21.4%).
More is Yet to Come?
In some respects, Cooper is doing all of this with its hands at least partially tied. The company has had capacity issues in its silicone hydrogel business for some time now, and it looks like the resolution of these problems will be a 2011 event. In particular, the company's rollout of the Biofinity product is on hold and the ongoing rollout of Avaira is seriously constrained. Given the market share and margin potential of these products (silicone hydrogel products are now more than 40% of the global contact lens market), the company is certainly motivated to find a way to ramp production as quickly as possible without compromising quality.
It might also be fair to wonder what more the company can do with its surgical business. While not just a women's health issue, companies like Hologic (Nasdaq:HOLX) and Conceptus (Nasdaq:CPTS) have nevertheless pointed to slower activity due to the economy. What that suggests, then, is that Cooper is taking share in its markets (possibly helped by rival Boston Scientific's (NYSE:BSX) ongoing shuffling of priorities).
As this business is growing faster than vision care, has higher margins and is arguably less vulnerable to broad (and costly) direct-to-consumer advertising, it does not seem out of line to wonder if the company can (and should) move more aggressively to grow this business. While the company still has a fair amount of debt on the books, perhaps the company can nevertheless leverage its cash flow or stock to find deals. Then again, it is entirely reasonable for the company to opt to have a successful small surgical business rather than a mediocre large business.
The Bottom Line
While Cooper gave encouraging guidance for the next year, the company is not entirely out of the woods. If the current administration is able to back up its talk about closing various corporate tax loopholes, that would be a problem for this company (the reported tax rate this quarter was just 14%). Likewise, the company competes against some very large and very well-heeled competition and Cooper certainly knows as well as any company that the bigger the competition is, the harder it punches.
Still, the company is doing well in a tough environment and has multiple potential drivers of future growth. Though the stock is not a rollicking bargain at today's prices, growth in the healthcare market certainly has some scarcity value today. (For related reading, take a look at Investing In The Healthcare Sector.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 5 Investing Statements That Make You Sound Stupid
A Strong End to the Year
Cooper posted a solid finish to its 2010 fiscal year. Revenue rose 11% to $313 million, surpassing the high end of what was a surprisingly tight range of estimates. The company's vision business (which is about 85% of the total) saw revenue growth of 10%, fueled at least in part by 88% growth in silicon hydrogel lenses. Its other business, surgical tools for the ob/gyn market, saw 14% reported growth.
Cooper also did a fine job with respect to generating profits. Gross margin improved nearly four full points, while operating profits jumped 56% from the year-ago period. Profitability was definitely helped by the surgical business, where segment gross profits jumped about 12 points from the year-ago period and the operating margin was well above the corporate average (28% vs. 21.4%).
More is Yet to Come?
In some respects, Cooper is doing all of this with its hands at least partially tied. The company has had capacity issues in its silicone hydrogel business for some time now, and it looks like the resolution of these problems will be a 2011 event. In particular, the company's rollout of the Biofinity product is on hold and the ongoing rollout of Avaira is seriously constrained. Given the market share and margin potential of these products (silicone hydrogel products are now more than 40% of the global contact lens market), the company is certainly motivated to find a way to ramp production as quickly as possible without compromising quality.
As this business is growing faster than vision care, has higher margins and is arguably less vulnerable to broad (and costly) direct-to-consumer advertising, it does not seem out of line to wonder if the company can (and should) move more aggressively to grow this business. While the company still has a fair amount of debt on the books, perhaps the company can nevertheless leverage its cash flow or stock to find deals. Then again, it is entirely reasonable for the company to opt to have a successful small surgical business rather than a mediocre large business.
The Bottom Line
While Cooper gave encouraging guidance for the next year, the company is not entirely out of the woods. If the current administration is able to back up its talk about closing various corporate tax loopholes, that would be a problem for this company (the reported tax rate this quarter was just 14%). Likewise, the company competes against some very large and very well-heeled competition and Cooper certainly knows as well as any company that the bigger the competition is, the harder it punches.
Still, the company is doing well in a tough environment and has multiple potential drivers of future growth. Though the stock is not a rollicking bargain at today's prices, growth in the healthcare market certainly has some scarcity value today. (For related reading, take a look at Investing In The Healthcare Sector.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Stephen D. Simpson, CFA
Stephen D. Simpson, CFA, is a freelance financial writer, investor, and consultant. He has worked as an equity analyst for both sell-side and buy-side investment companies in both equities and fixed income. Stephen's consulting work has focused primarily upon the healthcare sector, while he has also written extensively for publication on topics pertaining to investments, security analysis, and healthcare. Simpson operates the Kratisto Investing blog, and can be reached there.
Free Annual Reports
