Tags: Covidien | medical | devices | COV

Covidien Performs On Medical Devices

By    |   Thursday, 01 Dec 2011 06:19 PM

Covidien (COV), formerly known as Tyco International’s healthcare unit, has generated strong performance through development, production and distribution of medical and imaging devices, pharmaceuticals, and other healthcare products.

Medical devices now account for about two-thirds of the company’s revenue and that ratio is likely to rise as Covidien jettisons more of its pharmaceutical business, Morningstar estimates.

The power of Covidien’s device unit stems from its superior technological capability and distribution network. Minimally invasive surgery products represent an area of fertile growth for Covidien in the future.

The company is in the top four in terms of market share in nearly all of its product lines, and in the top two for the areas most important for the company, according to Morningstar’s calculations. Covidien’s top competitor is Johnson & Johnson (JNJ).

Unlike J&J, though, Covidien has no desire to become a one-stop healthcare shop. That’s why some divestitures are likely in coming months as Covidien sheds the grow-at-all-costs model prevalent at Tyco.

Covidien registered profit of $451 million in the quarter ended Sept. 30, up 2 percent from a year earlier. Sales jumped 15 percent to $3.1 billion.

Double-digit EPS

Standard & Poor’s analyst Phillip Seligman has a five-star buy rating on Covidien shares. He expects the company to post double-digit earnings-per-share growth for years to come. Covidien’s acquisitions, licensing deals, and divestitures of underperforming segments will help drive that performance, Seligman says.

New product launches, growth in Covidien’s devices unit, and cost controls will play an important role, he says. Strong free cash flow will provide financial flexibility.

“We expect COV to benefit also from aging global populations and its emerging markets penetration, where it expects sales to double to $2 billion over the next five to six years,” Seligman writes.

The company next reports earnings on Feb. 15.

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Covidien (COV), formerly known as Tyco International s healthcare unit, has generated strong performance through development, production and distribution of medical and imaging devices, pharmaceuticals, and other healthcare products. Medical devices now account for about...
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2011-19-01
Thursday, 01 Dec 2011 06:19 PM
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