CooperCompanies (COO)

Medical device company CooperCompanies (NASDAQ:COO) missed Wall Street’s revenue expectations in Q4 CY2024 as sales rose 3.6% year on year to $964.7 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $4.12 billion at the midpoint. Its non-GAAP profit of $0.92 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in 1958, CooperCompanies (NASDAQ:COO) develops and manufactures of products in the eye care and women's health sectors, with its key products including contact lenses and fertility treatments.

The medical devices industry operates a business model that balances steady demand with significant investments in innovation and regulatory compliance. The industry benefits from recurring revenue streams tied to consumables, maintenance services, and incremental upgrades to the latest technologies. However, the capital-intensive nature of product development, coupled with lengthy regulatory pathways and the need for clinical validation, can weigh on profitability and timelines. In addition, there are constant pricing pressures from healthcare systems and insurers maximizing cost efficiency. Over the next several years, one tailwind is demographic–aging populations means rising chronic disease rates that drive greater demand for medical interventions and monitoring solutions. Advances in digital health, such as remote patient monitoring and smart devices, are also expected to unlock new demand by shortening upgrade cycles. On the other hand, the industry faces headwinds from pricing and reimbursement pressures as healthcare providers increasingly adopt value-based care models. Additionally, the integration of cybersecurity for connected devices adds further risk and complexity for device manufacturers.

Competitors in the medical device space include Johnson & Johnson (NYSE:JNJ), Alcon (SWX:ALC), and Bausch + Lomb (NYSE:BLCO).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $3.93 billion in revenue over the past 12 months, CooperCompanies has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, CooperCompanies grew its sales at a decent 8% compounded annual growth rate. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. CooperCompanies’s annualized revenue growth of 7.8% over the last two years aligns with its five-year trend, suggesting its demand was stable.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, CooperCompanies’s organic revenue averaged 8.3% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, CooperCompanies’s revenue grew by 3.6% year on year to $964.7 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.6% over the next 12 months, similar to its two-year rate. Still, this projection is above the sector average and implies the market is baking in some success for its newer products and services.

CooperCompanies has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 16%.

Analyzing the trend in its profitability, CooperCompanies’s operating margin rose by 5.1 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 3.1 percentage points on a two-year basis.

This quarter, CooperCompanies generated an operating profit margin of 18.9%, up 2.4 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

CooperCompanies’s EPS grew at an unimpressive 4.4% compounded annual growth rate over the last five years, lower than its 8% annualized revenue growth. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of CooperCompanies’s earnings can give us a better understanding of its performance. A five-year view shows CooperCompanies has diluted its shareholders, growing its share count by 1.2%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, CooperCompanies reported EPS at $0.92, up from $0.85 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects CooperCompanies’s full-year EPS of $3.76 to grow 8.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

CooperCompanies has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.3% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that CooperCompanies’s margin expanded by 3.1 percentage points during that time. This is encouraging because it gives the company more optionality.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

CooperCompanies historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.9%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, CooperCompanies’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

CooperCompanies reported $100.9 million of cash and $2.52 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.17 billion of EBITDA over the last 12 months, we view CooperCompanies’s 2.1× net-debt-to-EBITDA ratio as safe. We also see its $110.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. For example, revenue missed, which is never a good sign. The stock traded down 11% to $81.07 immediately following the results.

Updated: May 22, 2025 at 11:50 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in CooperCompanies.

CooperCompanies isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its mediocre ROIC lags the market and is a headwind for its stock price.

CooperCompanies’s P/E ratio based on the next 12 months is 19.4x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $105.55 on the company (compared to the current share price of $79.30).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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