Tags: Covidien | global | reach | COV

Covidien Primed to Grow On Global Reach

By    |   Thursday, 12 April 2012 01:24 PM

Covidien (COV), a global medical supplies provider based in Ireland, is primed to grow quickly on its expanding global reach, analysts believe, while it remains positioned to benefit from the aging U.S. population.

Covidien spun off from conglomerate Tyco International in 2007. The Dublin firm makes medical devices and supplies, diagnostic imaging agents, pharmaceuticals, and other healthcare products. It sells its goods globally in more than 140 countries to healthcare centers and service providers of all types, as well to drug makers.

The company earned about 55 percent of its net 2011 sales of $11.6 billion in the United States and 45 percent in the rest of the world. Net income came to $1.9 billion.

Medical devices focuses on instruments used for surgery and medical treatment and recovery, which it sells to doctors, hospitals and large healthcare organizations. It also makes and sells medical supplies, such as bandages and gloves.

The pharma division is involved specialty drugs such as painkillers and contrast agents used in imaging processes, as well as radiopharmaceuticals.

The company has been on an M&A tear of late, buying ev3 Inc, a maker of vascular devices, for $2.6 billion cash in July 2010, while selling off a specialty chemicals business and a sleep therapy line in August of that year. It since has made several smaller acquisitions.

As to risks, the company warned that pending healthcare reform might result in a new excise tax on its medical devices business, as well as potential fees on its pharmaceuticals.

“U.S. net sales of potentially taxable medical devices represented approximately 30 percent to 40 percent of our total net sales in fiscal 2011 and, therefore, this tax burden may have a material, negative impact on our results of operations and our cash flows,” management said.

Multiple outpeforms

Analysts are largely bullish on Covidien, giving it multiple outperform ratings and not a single sell nor underperform among the major banks and financial institutions. William Blair & Co., Piper Jaffray, and Morgan, Keegan & Co. all call for the stock to outperform the market. Raymond James has it rated a strong buy.

"Covidien is expanding its footprint in emerging markets, notably in Asia and Latin America, and boosting market share in core segments through investments in sales and marketing infrastructure,” noted the analysts at Zacks. “Covidien plans to double its emerging market revenues from $1 billion currently over the next five years.”

Covidien will next report on April 27.

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