Cooper Companies Earnings: Healthy Demand and Favorable Product Mix Raise Top and Bottom Lines

Narrow-moat Cooper Companies COO reported third-quarter results that came in higher than our expectations. Total sales were up 10.3% year over year as broad-based adoption of Cooper’s contact lenses and surgical business fueled growth. Demand for both businesses remains healthy, and management raised its full-year guidance for both segments. After accounting for our elevated near-term assumptions as well as the time value of money impact, we raise our fair value estimate to $345 per share from $325.

CooperVision reported a year-over-year sales jump of 11.3% thanks to strong performance from toric and multifocal lenses, both up high-teens during the quarter. This is especially impressive given price only made up roughly 2% of growth, which puts growth from volume and mix at 10% with a 100-basis-point headwind from foreign exchange. Daily silicone hydrogel (SiHy) lenses posted another solid result, up 23%, and these lenses not only help boost sales but also flow nicely down to the line thanks to their higher margins. We view SiHy lenses as a major growth driver for the contact lens industry over the next five years, and while other players in the space have their own offerings Cooper boasts the widest stock keeping unit range. We see trade-ups from non-SiHy to SiHy lenses as a major challenge for manufacturers given a material jump in price, but Cooper offers a variety of SiHy lenses at different price points that we believe could allow consumers to adopt Cooper’s SiHy lenses more easily. And we see this in action—the overall contact lens market grew roughly 8% during the quarter, but Cooper took share at 11%.

CooperSurgical continues to boast solid growth, up 8.3% during the quarter. Cooper is among the leaders in the fertility market, and we believe the company offers some of the widest ranges of services in the space. We think Cooper is well positioned to enjoy macro trends, including women delaying childbirth and increasing patient awareness.