CareFusion Sails to 52-Week High

Shares of CareFusion ( CFN - Snapshot Report ) reached its 52-week high of $28.73 on Thursday, September 27, 2012. The medical technology stock continues to edge past resistance levels to achieve another 52-week high. The closing price as of September 27, 2012 was $28.63, which represented a decent year-to-date return of 11.6%.

The stock currently retains a short-term Zacks #1 Rank (Strong Buy).

Growth Drivers

A profound mix of solid fourth quarter, raised fiscal 2013 earnings estimates, acquisition synergies, margin improvement and geographic expansion – are the major contributors of growth for this stock.

With respect to earnings surprises, CareFusion has topped the Zacks Consensus Estimates in six of the last seven quarters and met the estimates once, with an average beat of 6%

On August 9, CareFusion reported sales of $3.6 billion for fiscal 2012, a roughly 5% year over year growth. Revenues were driven by Medical Systems segment which witnessed a year-over-year growth of 11%. However, revenues from Procedural Solutions declined 5% from the prior year.

CareFusion raised its adjusted diluted earnings per share target for fiscal 2013 to a range of $2.11 to $2.21, following the strong performance in fiscal 2012. The company is also targeting a 12−14% compounded earnings per share growth through fiscal 2015 on the back of capital allocation in the form of suitable acquisitions and share buyback programs.

CareFusion improved its adjusted operating margin on a sequential basis in all four quarters to exit fiscal 2012 at 17.4%. For fiscal 2013, the company currently expects operating margin in the band of 19.5% to 20% compared with the earlier guidance of 18% to 18.5% on an adjusted basis. CareFusion envisages adjusted operating margin to exceed 21.5% through fiscal 2014.

While the market in Western Europe remains soft, CareFusion is strategizing to expand and strengthen its operations in the region. The company witnessed notable growth in other high value markets such as the BRIC nations, Eastern Europe, Southeast Asia and the Middle East.

CareFusion continues to build a solid foundation for future growth. The company is expected to be well positioned to gain momentum and accelerate growth in the years ahead, backed by accretive mergers and acquisitions and a strong balance sheet.

Earnings Estimate Revision

Given CareFusion’s solid performance, the Zacks Consensus Estimate for fiscal 2013 increased 8.1% to $2.14 per share over the last 60 days. The current estimate implies an expected year over year growth of 20.3%.

For 2014, the Zacks Consensus Estimate rose by 6.8% over the same time frame to $2.37 per share, implying an estimated year over year growth of 10.8%.

Valuation

Valuation of CareFusion looks compelling compared to its peers by most metrics. The company is trading at a forward P/E of 13.37x, a 13.3% discount to the peer group average of 15.42x. The price-to-book of 1.23x is at a 33.2% discount to the peer group average of 1.84x. Valuation also looks attractive with respect to the price-to-sales (P/S) ratio which stood at 1.74, a 13% discount to the peer group average of 2.

About the Company

CareFusion, with market capitalization of $6.14 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 U.S. and in over 130 countries throughout the world. The company’s customer profile in the U.S. includes hospitals, ambulatory surgical centers, clinics, long-term care facilities and physician offices. CareFusion, incorporated in Delaware, was spun off from Cardinal Health ( CAH - Analyst Report ) on August 31, 2009.

While a slew of product recalls represents a downside, the company is growing both through the organic and the inorganic route.