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Stock Analyst Update

Continued Progress at Cooper

We're increasing our fair value estimate on the narrow-moat company to reflect higher margin assumptions.


Narrow-moat  Cooper Companies posted solid-second quarter earnings that were slightly ahead of our expectations, and we plan to increase our fair value estimate to reflect higher margin assumptions and management’s increased year-end outlook. Revenue increased 8% year over year to $552.4 million, with CooperVision up 4%, which fueled higher gross and operating margins stemming from improved manufacturing efficiencies and sales of the high-margin Biofinity products. We believe CooperVision’s diverse portfolio of daily and silicone hydrogel lenses contributed to Cooper’s growth across all geographic regions.

This quarter’s results suggest early contributions from CooperVision’s salesforce expansion. Cooper expanded its salesforce 16% year over year, which we believe directly translated to CooperVision’s 8% growth in the Americas, outpacing market growth of only 2%. We trust that this expanded salesforce will help CooperVision increasingly penetrate the Asia-Pacific and EMEA regions.

On a slightly negative note, we believe CooperVision will begin to contend with multiple issues in the long run. Cooper has benefited from growth in gross and operating margins due to operational efficiencies and new product lines, but we believe it will be increasingly difficult for its margin expansion story to persist, especially given the continuation of currency headwinds. Furthermore, Cooper has benefited from the stumbles at rival Bausch & Lomb and Alcon--something we do not expect to persist in the long run.

This quarter, CooperSurgical increased 23.9% year over year to $113.9 million, with strength coming from 52% constant-currency growth in the fertility division. We believe that as CooperSurgical integrates its numerous acquisitions, we will continue to see the segment outpace CooperVision in terms of revenue growth and encompass a greater proportion of Cooper’s total revenue. 

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Michael Waterhouse does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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