Morningstar | Cooper Slightly Underwhelms in 2Q, but Bright Prospects Are Coming Into Focus for Key Products
Cooper Companies reported second-quarter revenue of $654 million, an increase of 4% year over year, slightly below our estimate. Heightened marketing spending around Paragard and MySight largely led to a decrease in pro forma operating margin from 29% to 27%. Our fair value estimate remains unchanged at $242, and we maintain our position that Cooper possesses a narrow moat in its vision segment due to its strong brand loyalty fostered by key account relationships, its cost advantages in manufacturing, and switching costs.Sales in Cooper’s vision segment increased in line with our expectations, at 4% year over year. Echoing last quarter, CooperVision was propelled by the strong performance of its daily silicone hydrogel lenses, Clariti and MyDay. Cooper had a softer-than-expected quarter in the U.S., with only 5% growth; however, historically, revenue has increased in the back half of the year. Therefore, we expect CooperVision to be able to attain growth averaging above 6% to reach its revised fiscal 2019 guidance estimate of nearly $2 billion. We are optimistic that Cooper’s new myopia management product, MiSight, will continue to see increased adoption abroad amid a strong demand environment. Additionally, there is a large, yet uncertain, potential in the U.S., which depends on approval from the Food and Drug Administration.
In step with the overall business, Cooper’s surgical division grew its revenue by 4% year over year, slightly below our expectation. Keeping with the persistent trend over the last several quarters, Paragard, Cooper’s nonhormonal IUD, drove growth of 11%. We remain optimistic about Paragard’s potential, as management is investing heavily in its marketing, and we expect the overall U.S. IUD market will continue to grow. Cooper’s fertility segment performed poorly, bogging down the overall surgical segment, with revenue declining 2%, reinforcing our view that competitors have an advantage in the fertility space.
Cooper Companies is a global medical device company. The company operates through CooperVision and CooperSurgical business units. CooperVision is a manufacturer providing products for contact lens wearers. CooperVision designs its products for astigmatism, presbyopia, myopia, ocular dryness and eye fatigues with a collection of spherical, toric and multifocal contact lenses. CooperVision is engaged in myopia management and specialty eye care markets with products, such as orthokeratology and scleral lenses. CooperSurgical focuses on improving the health of women, babies and families through a portfolio of products and services including medical devices, fertility, diagnostics and contraception.
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