COO is currently trading at a trailing twelve months P/E of 20.01 and a trailing 12 months EV/EBITDA of 13.42. COO's current P/E valuations represent a 7% discount to its five-year average P/E of 21.7. LF delivered a ROE of 11.7% over the past 12 months and a 10-year book value per share growth of 17%.
Financial and Business Risks
COO is moderately geared with a gross debt-to-equity ratio of 23%. This is partly mitigated by an interest coverage ratio of 8.87 and a current ratio of 2.71.
The market for contact lenses is intensely competitive and is characterized by declining sales volumes for older product lines and increasing demand for silicone hydrogel based products. COO's major competitors inthe contact lens business, include Johnson & Johnson Vision Care Inc., CIBA Vision and Bausch & Lomb Inc., which offer competitive products and differentiated materials, plus a variety of other eye care products including lens care products and ophthalmic pharmaceuticals, which may give them a competitive advantage over COO in marketing their lenses.
COO has to be compliant with current Good Manufacturing Practices. Its distribution center in West Henrietta, New York, was recently inspected by FDA in and COO received a warning letter in December 2011, stating that certain labeling and packaging operations conducted at the facility deviate from applicable cGMP requirements.
COO could face risks related to product liability claims in the event that the use of its products results in personal injury. Consumers may halt or delay purchases of a product that is the subject of a claim or recall. On Aug. 19, 2011, COO announced that its subsidiary CooperVision has initiated a voluntary recall on limited lots of Avaira Toric contact lenses, because of the unintended presence of a residue on certain lenses. Avaira Toric lenses were launched in April 2010 and represent less than 1% of COO's fiscal third quarter 2011 revenues.
Business Quality and Capital Allocation
CooperVision is the world’s third largest manufacturer of contact lenses with 17% market share of the global soft contact lens market and approximately 6,850 employees with sales in over 100 countries. The global soft contact lens market is expected to grow at a five-year CAGR of 6% from $6.8 billion in 2011 to $9.2 billion in 2016. Growth is expected to be derived from children entering earlier, presbyopes staying longer and incidence of myopia increasing. CooperVision delivered a 20-year revenue CAGR of 21.5% from 1992 through 2011.
CooperSurgical is dedicated to providing medical devices and procedure solutions that improve the delivery of health care to women. It sells exclusively to medical professionals. CooperSurgical has a proven track record of successful M&A execution and integration, having completed over 30 acquisitions since inception. Its acquisition of Origio, an in-vitro fertilization treatment company, in July 2012 has increased the fertility segment of CopperSurgical's business from 15% to 27% of sales. CooperSurgical delivered a 16-year revenue CAGR of 18.1% from 1996 through 2011.
On Dec. 15, 2011, COO announced that its board of Directors has approved a share repurchase program, authorizing the purchase of up to $150 million of the cOO's shares of common stock.
Dividend yield at 0.06% is insignificant and current valuations are not compelling.
The author does not have a position in any of the stocks mentioned.