Rising earnings estimates in the wake of strong fourth quarter and fiscal 2012 results helped CareFusion ( CFN - Snapshot Report ) hit its 52-week high of $28.62 on September 19. This global medical technology company has a history of beating quarterly earnings estimates and has returned more than 15% in the past year. In addition to its strong fourth quarter, the stock is being driven by strategic initiatives to realign its portfolio, acquisitions, share buybacks and an attractive valuation.

Strong Fourth Quarter

CareFusion reported its fourth quarter and fiscal 2012 results on August 9. Revenue grew 4% year over year (at constant exchange rate or CER) to $968 million during the quarter, surpassing the Zacks Consensus Estimate of $956 million by 1.3%. Revenues increased 5% in fiscal 2012 to $3.6 billion. The strength of the Medical Systems segment helped CareFusion reach the high end of its revenue guidance range between 3% and 5%.

Adjusted earnings from continuing operations came in at 51 cents per share for the fourth quarter, beating the Zacks Consensus Estimate by 2%. For fiscal 2012, it reached $1.78, right in the middle of the company’s $1.75-$1.80 guidance range.

The Medical Systems segment recorded 10% revenue growth at CER to $646 million during the quarter. Record installations of Infusion Systems and double-digit sales growth in both Respiratory Technologies and Dispensing Technologies contributed to the growth. Procedural Solutions, however, recorded a 6% decline at CER to $322 million, due to lower sales in the Specialty Disposables business.

The company is progressing with its sales force realignment. The newly formed surgical and vascular teams are gaining traction in their new territories, thereby strengthening the company’s position.

For fiscal 2013, CareFusion expects to report revenue growth (at CER) between 1% and 3%, resulting in adjusted earnings of $2.11 to $2.21 per share. The company is also targeting a 12% to 14% compounded annual EPS growth rate through fiscal 2015 on the back of capital allocation through suitable acquisitions and share buyback programs.

Earnings Estimate Revisions

Earnings estimates have been on an uptrend over the last 60 days. The Zacks Consensus Estimate for fiscal 2013 advanced almost 9.1% to $2.16 per share, representing year-over-year growth of about 21.2%. Meanwhile, the Zacks Consensus Estimate for fiscal 2014 is up 6.8% to $2.37 per share, representing year-over-year growth of approximately 10.0%.

Attractive Valuation

Valuation of CareFusion looks compelling compared to its peers by most metrics. Based on fiscal 2013 earnings estimates, the company is trading at a price-to-earnings (P/E) of 13.20x, a 16.8% discount to the peer group average of 15.87x. The price-to-book of 1.22x is at a 35.8% discount to the peer group average of 1.90x. Valuation looks attractive with respect to the price-to-sales (P/S) ratio as well. The P/S ratio of the company stood at 1.73, a 12.6% discount to the peer group average of 1.98.

Chart Reflects Strength

The stock gained momentum on August 1 based on a solid earnings expectation. It has been consistently trading above its 200-day and 50-day moving averages over the past month, following a strong fourth quarter. Several earnings beats, rising estimates and upbeat growth prospects make CareFusion worth considering.

CareFusion, with a market capitalization of $6.32 billion, is a global medical technology company with a portfolio encompassing IV infusion, medication and supply dispensing, respiratory care, infection prevention and surgical instruments to customers in the US and over 130 countries throughout the world. The company’s customer profile in the US includes hospitals, ambulatory surgical centers, clinics, long-term care facilities and physician offices.

CareFusion, incorporated in Delaware, was spun off from Cardinal Health (CAH) on August 31, 2009. The company has grown both through the organic and the inorganic route. Earlier, in April 2012, in a strategic decision to simplify its operations, CareFusion sold its Nicolet neurodiagnostic and monitoring products business to Natus Medical (BABY) for $58 million.

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