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On Nov 28, we retained our Neutral recommendation on The Cooper Companies Inc. (COO - Analyst Report). We are encouraged about COO’s earnings and revenue beats in the fiscal 2013-third quarter as well as continued growth in the contact lens market. However, near term issues emanating from a weak economy, particularly in Europe, raise concerns.

Why Maintained?

On Sep 5, Cooper Companies reported earnings and revenues for the fiscal third quarter ended Jul 31, 2013, both of which surpassed the Zacks Consensus Estimate. The company’s adjusted earnings of $1.74 per share exceeded the year-ago level of $1.45 by 20% as well as the Zacks Consensus Estimate by 3 cents.

Revenues in the quarter grew 8.9% to $412.0 million, ahead of the Zacks Consensus Estimate of $410 million. Thanks to the solid CooperVision (CVI) and CooperSurgical (CSI) sales during the quarter and their continued market share gains.

COO upgraded its revenues and earnings guidance for fiscal 2013. The company expects revenues in the range of $1,586 million–$1,601 million compared with the earlier guidance of $1,575 million–$1,605 million, comprising CVI revenues between $1,271 million and $1,281 million (previously $1,260 million to $1,280 million) and CSI revenues between $315 million and $320 million (previously $315 million to $325 million).

The company also expects reported earnings in the band of $6.57 to $6.62 compared with the earlier range of $6.42 to $6.52 and adjusted earnings in the range of $6.23 to $6.28 compared with the earlier range of $6.15 to $6.25.

Following the release of third quarter results, the Zacks Consensus Estimate for 2013 earnings rose 0.6% to $6.26 per share. The Zacks Consensus Estimate for 2014 earnings also went up 1.7% to $7.01 per share.

Cooper commanded almost one-third market share in rapidly growing specialty lenses, multifocal lenses and torics. The company continued to garner market share by growing at two to three times the market growth rate.

Further, the outlook for the contact lens industry is favorable. A fall in dropout rate of contact lens wearers and further market penetration, especially in developing nations, is expected with continuous improvisation in the technology.

However, the global markets, particularly European nations, continue to be negatively affected by uncertainty. In such a situation, contact lens, being a discretionary purchase for the most part, is often deferred by cash-strapped consumers. Moreover, COO faces formidable competition in each of its major product lines. Competition comes from globally well established contact lens manufacturers such as Johnson & Johnson (JNJ - Analyst Report) and Novartis AG (NVS - Analyst Report).

Other Stocks to Look For

Other stocks in the medical/dental supplies industry that are currently worth a look include Align Technology Inc. (ALGN - Analyst Report). Align Technology carries a Zacks Rank #1 (Strong Buy).

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