Cooper Companies - Excellent Long-Term Growth Play At A Fair Price

| About: The Cooper (COO)


Cooper Companies reported a solid set of results, issues a comforting full-year outlook.

Long-term 2014-2018 outlook offers a roadmap for long-term investors.

Shares offer appeal on dips.

The Cooper Companies (NYSE:COO) released a solid set of second-quarter results on Thursday after the market close. Shares offer appeal as the company is confident for the rest of the year, while the multi-year guidance is comforting for long-term investors.

I am a buyer on significant dips in this consistent grower.

Second Quarter Headlines

Cooper Companies reported second-quarter revenues of $412.3 million which is up 7% compared to last year.

The company posted net earnings of $79.2 million which was up 6% compared to last year. As the company has repurchased shares at a modest pace, earnings per share growth came in a bit higher at 7%. GAAP earnings advanced by ten cents to $1.62 per share.

Non-GAAP earnings for the quarter came in two pennies higher at $1.64 per share.

Looking Into The Numbers

Reported revenue growth of 7% appears solid and it could have come in even higher. In constant currencies and after accounting for the divestiture of Aime, revenues would have been up by 9%.

The CooperVision business reported a 7% jump in revenues to $331.1 million. Non single-use sphere revenues were unchanged at $119.1 million, but would have grown by 5% adjusting for the Aime impact. CooperVision is the third largest manufacturer of soft contact lenses which are sold in more than a 100 countries. The company's large competitors are Ciba and Johnson & Johnson (NYSE:JNJ) in this area.

Growth was solid at all other subsegments with revenue growth at the toric, multifocal and single-use sphere coming in at 8, 20 and 12%, respectively. The CooperSurgical business saw a 9% increase in revenues to $81.2 million driven by strong growth at the fertility segment.

Overall, Cooper saw gross margins fall slightly to 65% of sales due to higher costs related to the MyDay hydrogel product. Strong leveraging of operating expenses allowed Cooper to slightly increase operating earnings which rose to 22% of sales.

2014 Outlook

Cooper left its full-year revenue guidance unchanged, looking for revenues of $1.685 to $1.725 billion.

The company is slightly more upbeat about its earnings guidance, foreseeing GAAP earnings between $6.78 and $7.00 per share.

Valuing Cooper

The company ended the quarter with $82.7 million in cash and equivalents. The company holds $335.4 million in total debt, resulting in a modest net debt position of $253 million.

Trading at $131 per share, Cooper's equity is valued at $6.3 billion. Based on the company's full-year outlook, this values Cooper at 3.7 times annual revenues and roughly 19 times annual earnings.

Cooper's quarterly dividend of $0.03 per share is negligible as it provides investors with a paltry 0.05% dividend yield.

Long-Term Growth Plan

For the years of 2014 till 2018, Cooper has embarked on an ambitious future growth plan. The company aims to outgrow the market, make strategic acquisitions and boost earnings growth through margin expansion. By 2018, operating margins are targeted to come in at 25%, up from operating margins of 22% as reported during this quarter.

The global market for soft lenses is expected to grow from $7.2 billion in 2013 to $9.7 billion by 2018. This translates into a CAGR of 6% per annum. Given the company's ambitions to gain market share, more upside in topline growth could be among the possibilities.

Further growth is anticipated in the surgical business as well in which Cooper has made over 30 acquisitions since 1990.

Takeaway For Investors

Investors in Cooper have hit a home run, as shares have risen from lows of $10 in 2009 to current levels of $130 per share. This strong share performance has been supported by strong operational revenue and earnings growth, as valuation multiples have increased as well over time.

Shares currently trade at 19 times forward earnings which is not that bad given the consistent and very profitable growth, with shares trading at just a slightly higher multiple than the rest of the market. Cooper's balance sheet is healthy and its growth plans look solid.

High single-digit earnings growth is foreseen for the coming five years, as mid-single or even high-single digit revenue growth will be accompanied by modest margin improvements in the coming years.

Shares offer appeal despite the home run in recent years. If a potential correction might occur in the coming weeks or months, I am an eager buyer. A retest of February's lows of $115 to $120 per share would be a good start.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.