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The Zacks Analyst Blog Highlights: Newell Rubbermaid, Cooper Industries, Avery Dennison, Masimo and Covidien

NWL AVY MASI COV

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For Immediate Release

Chicago, IL – October 16, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Newell Rubbermaid Inc. (NWL - Analyst Report), Cooper Industries plc Avery Dennison Corporation (AVY - Analyst Report), Masimo Corporation (MASI - Analyst Report) and Covidien (COV - Analyst Report).

 

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Here are highlights from Monday’s Analyst Blog:

 

Newell Touches New 52-Week High

 

Shares of Newell Rubbermaid Inc. (NWL - Analyst Report) reached a new 52-week high of $19.78 on Friday, October 12, 2012, beating its previous 52-week high of $19.74. The closing price of the producer of Sharpie pens and Rubbermaid containers as on October 12, 2012 was $19.75, which represented a solid year-to-date return of 54.2%. Average volume of shares traded over the last 3 months stands at approximately 2.839 million.

Growth Drivers

An impressive record of beating the quarterly earnings expectations, margin improvement, a positive fiscal 2012 outlook, and a decent dividend yield, are the major growth drivers for the shares of this company.

With respect to earnings surprise, Newell has topped the Zacks Consensus Estimates in the last four quarters, with an average of 5.8%.

Lately, the company reported adjusted earnings of 47 cents per share for the second quarter of fiscal 2012, up 4.4% from the year-ago quarter’s earnings of 45 cents. The earnings growth was driven by the positive impact of pricing and productivity gains and lower structural selling, general and administrative expenses as a percentage of sales, partially offset by higher input cost inflation. Moreover, quarterly earnings beat the Zacks Consensus Estimate of 45 cents.

Newell’s quarterly gross profit fell 0.5% year over year to $581.2 million; however, gross margin expanded 51 basis points to 38.3%, primarily due to higher pricing and productivity. Operating income increased marginally by 0.6% year over year to $207.1 million, while operating margin expanded 41 bps to 13.7%, primarily due to gross margin expansion and lower structural selling, general and administrative expenses.

Further, despite ongoing sluggishness in the global economy, the company has reiterated its outlook for fiscal 2012. It continues to anticipate core sales growth of 2% to 3% and adjusted earnings in the range of $1.63 to $1.69 per share for fiscal 2012. Moreover, Newell expects an improvement of 20 basis points in operating margin during fiscal 2012.

Newell rewards its shareholders through regular quarterly dividends and share repurchases. In September 2012, the company paid a quarterly dividend of 10 cents per share. This yields a solid 2.0%, while the company has a payout ratio of 110%. In the second quarter, the company bought back nearly 1.4 million shares, valued at approximately $24.9 million under its $300.0 million share repurchase program.

Furthermore, we believe that the company’s cost management initiatives will further boost its bottom line. It is expected that Newell will be saving $55–$65 million in fiscal 2012 with the completion of the European Transformation Plan. In addition, the company’s Project Renewal program will reduce its structural selling, general and administrative expenses by around $90–$100 million.

Valuation

Newell currently trades at a forward P/E of 11.80x, compared with the peer group average of 11.76x. Again, its price-to-book ratio of 2.91 is at a premium to the peer group average of 2.55. Moreover, the company’s price-to-sales ratio of0.97 is at a discount to the peer group average of 0.99. Given the company’s compelling fundamentals and earnings surprise history in the last four quarters, we believe the chances for its EPS growth will be higher than the long-term expected growth of 9.0%.

At the same time, it is more efficient with its assets than its peers, which is a positive factor that will help this growth. It has a 12-month ROA of 7.7%, which is above its peer group average of 6.9%.

About the Company

Newell Rubbermaid is one of the leading manufacturers of home and office products in the U.S. The company also possesses a strong portfolio of widely popular brands such as Sharpie, Paper Mate, Dymo, Expo, Waterman, Parker, Irwin, Lenox, Rubbermaid, Levolor, Graco, Calphalon and Goody. Leveraging its strong brand equity, Newell Rubbermaid expects modest earnings going ahead, provided the market scenario improves.

The company faces intense competition from numerous manufacturers and distributors of consumer and commercial products such as Cooper Industries plc and Avery Dennison Corporation (AVY - Analyst Report).

Zacks Rank & Recommendation

Newell Rubbermaid currently has a Zacks #2 Rank, implying a short-term Buy rating. However, we remain slightly cautious on the stock and uphold our long-term Neutral recommendation, waiting to see further catalysts before becoming more positive on the stock.

 

New Offerings from Masimo

 

Recently, Masimo Corporation (MASI - Analyst Report), a leader in non-invasive patient monitoring technology, announced the European CE Mark approval and introduction of the new fractional arterial oxygen saturation parameter – SpfO2 through the rainbow Universal ReSposable SuperSensor.

The SpfO2 as well as the rainbow SuperSensor are awaiting 510(k) clearance from the U.S. Food and Drug Administration (FDA). The rainbow SuperSensor is the first non-invasive sensor to provide concurrent monitoring of SpHb, SpCO, SpMet, SpfO2, SpOC, Perfusion Index, PVI, and Measure-Through Motion and Low Perfusion SpO2 and pulse rate of the patient.

To date, pulse oximeters were known to evaluate and display functional oxygen saturation parameter (SpO2). The technological advancement at Masimo will enable its rainbow Pulse CO-Oximeters to measure and display SpfO2. The debut of the SpfO2 parameter will improve standards of care by helping clinicians in decision making about common therapies like oxygen administration and red blood cell transfusion.

The rainbow SuperSensor, as Masimo’s newest introduction, is expected to bolster rainbow product sales and increase its worldwide installed base. Revenues from rainbow products improved 7% year over year to $9.7 million in the second quarter of 2012. The company shipped 37,300 new Pulse Oximeters and Pulse CO-Oximeters in the most recent quarter. This increased its global installed base to over a million units.

The CE Mark approval will further boost Masimo’s foothold in the international market. International product revenues increased 7% year over year (in terms of constant currency) to $32.1 million. Ex-U.S. product revenues represented 27.8% of total revenues with revenues from Europe, Middle East and Africa representing 13.8% of total revenues.

Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company’s prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.

While Masimo’s patented SET offering remains its mainstay, the rainbow measurements represent another growth driver beyond hospital care. The rainbow SpHb measurement platform continues to record steep growth with 48% year-over-year surge in the most recent quarter.

However, the company’s reliance on third-party providers like OEMs for a part of its business and customer concentration raises concern. We also note Covidien’s (COV - Analyst Report) effort to expand its oximetry and monitoring products portfolio. Earlier this month, the company won the U.S. Food and Drug Administration (FDA) 510(k) approval as well as the European Economic Area (EEA) CE Mark clearance for its Nellcor Bedside Respiratory Patient Monitoring system.

We currently have a Neutral recommendation on Masimo. The stock carries a Zacks #3 Rank, which translates into a short-term Hold rating.

 

 

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