Cooper Companies Earnings: Robust Demand for Toric and Multifocal Lenses Fuels the Top Line

Narrow-moat Cooper Companies COO reported second-quarter earnings that were slightly higher than our expectations. Total sales were up 5.7% year over year, driven by expanded product rollouts and a recovery in the Asia-Pacific region. We are raising our fair value estimate to $325 per share from $320 given an uptick in near-term assumptions from increased full-year guidance for CooperVision and CooperSurgical as well as time value of money.

CooperVision was up 6.4% as demand remains strong and continues to fuel the business. We see yet another quarter where Cooper outgrew the overall contact lens market and we attribute this to company’s strong intangible assets. Toric and multifocal lenses, two lines of products that enjoyed double-digit sales growth during the quarter, remain key growth drivers. Compared with spherical lenses, they have higher price tags as well as higher margins so we see continued expansion of the gross margin in the segment. Myopia management saw another strong quarter, up 36%. While it makes up a small portion of the top line currently (roughly 3.5% of expected 2023 sales), we see this channel as a high-growth and high-margin business. The high-switching-cost industry and optometrists usually stick with one or two brands, but MiSight is the first and only daily contact lens for myopia control, approved by the U.S. Food and Drug Administration, that helped open the door to new offices for Cooper. We believe the company is well positioned to enjoy industrywide tailwinds—the growing prevalence of myopia and an aging population—as the first entrant in the segment.

CooperSurgical was up 4.4% as its fertility business delivered another strong quarter. Conversely, Paragard declined 15%. Cooper raised Paragard’s price by 6% during the first quarter and buy-in activity from this as well as unfavorable channel inventory hurt its sales. Management reiterated its expectations for Paragard not to experience any unit growth throughout the year.