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Citi sees long-term upside in Cooper stock with margin expansion opportunities

EditorEmilio Ghigini
Published 12/06/2024, 05:54 AM
COO
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On Friday, Citi maintained a Buy rating on Cooper Companies (NASDAQ:COO) stock but slightly reduced the price target to $115 from the previous $116. According to InvestingPro data, Cooper Companies currently trades with a P/E ratio of 57.18 and demonstrates low price volatility with a beta of 0.97.

The adjustment followed the company's latest quarterly earnings report, which presented a combination of outcomes that included both hits and misses in terms of financial expectations.

Cooper Companies reported revenue of $1.02 billion, marking a 7% organic increase, which was marginally under the $1.03 billion consensus. The company maintains strong financial health, with InvestingPro analysis showing a robust current ratio of 1.99 and an impressive Altman Z-Score of 5.61, indicating solid financial stability. The shortfall was attributed to both of its segments performing below expectations.

CVI sales reached $676.4 million, an 8% organic rise but still below the anticipated $682 million, partly due to a "soft" October. Meanwhile, CSI sales were at $342.0 million, up by 5%, yet didn't meet the Street's projection of $346 million, affected by weaker Paragard sales.

Despite these revenue discrepancies, the company saw an improvement in its operating margins, which went up to 25.9% from 24.4% year-over-year, and its earnings per share (EPS) increased by 19% to $1.04, surpassing the consensus of $1.00.

Looking ahead, management provided guidance for FY25 with expected revenue between $4.080 and $4.158 billion, indicating a 6-8% organic growth but still falling short of the consensus of $4.19 billion. The EPS forecast was set at $3.92-$4.02, which is below the consensus estimate of $4.06.

Citi's analyst attributed the conservative guidance to a robust contact lens market that is growing at 5-7% annually, with a particular emphasis on the demand for Cooper's MyDay lens outstripping supply.

The firm emphasized that, although investors might not initially react positively to the guidance, the fundamental investment thesis for Cooper Companies remains intact, with multiple opportunities to expand margins.

Supporting this view, InvestingPro data reveals a healthy gross profit margin of 66.36% and shows that net income is expected to grow this year.

For deeper insights into Cooper Companies' financial health and growth prospects, investors can access the comprehensive Pro Research Report, which provides detailed analysis of over 1,400 US stocks. Citi reiterated its Buy rating based on these considerations.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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