The Cooper Companies: Strong Results, Attractive Valuation

The Cooper Companies, Inc. (COO) operates as a medical device company. It operates through the following business units: Cooper Vision and Cooper Surgical.

The Cooper Vision business unit brings a refreshing perspective on vision care with a commitment to crafting quality lenses for contact lens wearers. The Cooper Surgical business unit focuses on supplying women’s health clinicians with market medical products and treatment options to improve the delivery of healthcare to women. The company was founded in 1958 and is headquartered in San Ramon, California.

I am bullish on COO stock. The company reported a mixed Q4 2021 earnings report, and the full-year results showed a surge in profitability due to an income tax provision. The profitability is very strong, and financial strength poses no risks.

The Cooper Companies Business News

On February 7, 2022, CooperCompanies announced it would be acquiring Cook Medical’s Reproductive Health business, paying $875 million. The acquired company manufactures medical devices that focus on the fertility, obstetrics, and gynecology markets.

On December 17, 2021, another acquisition was announced by the firm. The company acquired was Generate Life Sciences for approximately $1.6 billion. Generate Life Sciences focuses on fertility treatments.

Earlier on December 8, 2021, CooperCompanies announced it declared a semi-annual dividend of 3 cents per share. 

Investors should know that as of July 2016, this semi-annual dividend of 3 cents has remained constant.

Fourth Quarter and Full-Year 2021 Results

COO stock earnings have rebounded strongly as of Q3 2020. In Q4 2021, normalized EPS of $3.28 was a miss by -$0.10, EPS GAAP 0f $2.21 was a miss by -$0.59, but revenue of $759.10 million was a beat by $10.93 million.

The quarterly financial results’ main highlights were a year-over-year revenue increase of 11%, GAAP diluted earnings per share (EPS) of $2.21, up 57 cents or 35% from last year’s fourth quarter, gross margin of 66% versus 62% in the same quarter last year, and operating margin of 17% versus 15% in Q4 2020.

All categories of CooperVision business units generated increased revenue year-over-year. The largest increase of 15% was for the Multifocal category, and the lowest of 9% was for the “Non-Single-Use Sphere, Other” category.

Revenue by geography showed an increase on a year-over-year basis for all areas. The EMEA region reported the highest revenue growth of 17%, whereas the Americas had the lowest growth of 6%.

Turning to full-year 2021 operating results, revenue of $2.92 billion increased 20% from 2020 and 18% in constant currency. The gross margin increased to 67% compared to 63% in 2020, and the operating margin expanded to 17% compared to 13%. GAAP diluted EPS of $59.16, surged 1,131% from FY 2020. The firm generated a free cash flow of $524.2 million.

A very important note about the surge of diluted GAAP EPS is that it was the result of a provision of income taxes. The effective tax rates for Fiscal 2021 and 2020 were (499.1)% and 10.6%, respectively. The decrease was primarily due to an intra-group transfer of intellectual property and remeasurement of the related deferred tax assets caused by the UK enactment of a 25% corporate tax rate.

Fundamentals – Risks

As per the latest quarter, its debt/equity ratio of 0.25 shows a healthy balance sheet. Its Piotroski F-Score is 7, indicating a very healthy company, and COO has shown predictable revenue and earnings growth. Profitability remains very strong, and free cash flow generation is very positive too.

Valuation

COO stock is attractive based on its P/E ratio of 6.5x compared to the U.S. medical equipment industry average of ~45x and based on its P/B ratio of 2.8x compared to the industry average of ~3x. The PEG ratio of 2.4 is not as attractive, but the expected three to five-year EPS growth of 11% is supportive of the stock price at the current level.

Wall Street’s Take

The Cooper Companies has a Moderate Buy consensus based on two Buys and three Hold ratings. The average Cooper Companies price target of $459.00 implies 18% upside potential.

Conclusion

The Cooper Companies had a mixed Q4 2021 earnings report, but full-year 2021 results showed a surge in profitability and widening profit margins. Free cash flow generation is positive and consistent, and geographical revenue performance showed strength in all areas.

Download the TipRanks mobile app now

​To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.