Covidien Provides 2013 Outlook - Analyst Blog
May 06 2013 - 9:00AM
Zacks
Covidien plc (COV)
has revealed its guidance for fiscal 2013 after adjusting for the
spin-off of the Pharmaceutical business, which is expected to take
place at the end of third quarter of fiscal 2013. It has also
provided a separate guidance for Mallinckrodt plc.
For fiscal 2013, Covidien expects net revenue to grow by 4% to 5%
(earlier 5% to 8%) year over year. The company’s core Medical
Devices segment is expected to be up 4%–6% (earlier 5%–8%) and the
Medical Supplies business is expected to grow 1%–2% (earlier 1%–3%)
year over year.
Further, adjusted operating margin (excluding one-time items) is
anticipated in the range of 22.0%–22.5% (earlier 22%–23%).
Effective tax rate is expected in the band of 17.0% and 17.5%
(earlier 17.5% and 18.5%) for fiscal 2013. Average shares
outstanding are expected between 470 million and 475 million.
Covidien has lowered its guidance due to unfavorable foreign
currency fluctuations. Management believes that once the impact of
the medical device tax and unfavorable foreign exchange rate is
accounted into the financials after a year, Covidien will likely
deliver better top-line performance and experience higher earnings
growth for 2014.
In addition to the guidance, Covidien has released historical
financial statements from fiscal 2010 to 2012 and the first quarter
of fiscal 2013, after adjusting for the forthcoming discontinued
operations.
In a separate press release, Covidien provided the first full-year
guidance for Mallinckrodt, which is expected to operate as a
separate, publicly traded company from mid-2013. For fiscal 2013,
the Pharmaceuticals division is anticipated to grow 7%–11%, on the
back of new products.
Our Take
Although adverse foreign exchange translation is likely to hamper
growth at Covidien in fiscal 2013, we believe that this
international healthcare major will be able to maintain its growth
momentum in the long run. The company is adequately placed to
achieve its long-term revenues and earnings growth targets based on
its attractive fundamentals, strategic R&D investment,
effective execution, new product cycle and expansion into emerging
markets.
The company had announced its decision to divest this unit in Dec
2011 in an effort to focus on its high-margin surgical product
portfolio. However, we are cognizant regarding the
divestment-related risks associated with the spin-off.
In Jan 2013, Abbott Laboratories (ABT) also
divested its research-based pharmaceuticals business into a new
company, AbbVie (ABBV) for the same reason as
Covidien. Since its inception, AbbVie’s share price increased
almost 30%, which is encouraging. ABT has also performed well
following the divestment, with share price increasing 18%,
year-to-date.
Covidien currently carries a Zacks Rank #3 (Hold). While we remain
on the sidelines regarding Covidien due to a difficult healthcare
environment, medical products company, Conceptus
(CPTS), carrying a Zacks Rank #1 (Strong Buy), warrants a look.
ABBVIE INC (ABBV): Free Stock Analysis Report
ABBOTT LABS (ABT): Free Stock Analysis Report
COVIDIEN PLC (COV): Free Stock Analysis Report
CONCEPTUS INC (CPTS): Free Stock Analysis Report
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