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Cooper Downgraded to Neutral

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We downgrade our recommendation on The Cooper Companies (COO - Free Report) to Neutral following its fiscal fourth quarter (ended October 31) results. Its fourth-quarter fiscal 2012 adjusted earnings per share rose 0.7% year over year to a record high of $1.47. However, it missed the Zacks Consensus Estimate of $1.53.

Revenues in the fourth quarter increased 10% (up 7% in constant currency, barring acquisitions) year over year to $396.3 million, falling short of the Zacks Consensus Estimate of $398 million. Growth was led by robust sales of offerings from CooperSurgical (CSI), higher revenues from CooperVision (CVI), acquisition synergies and newer products.

Revenues from Cooper’s mainstay contact lens division (80.3% of company-wide revenues), CVI edged up 5% (up 7% in constant currency) year over year at $318.1 million. Sales were higher for all categories of lenses. On a material based analysis, sales of silicone hydrogel contact lenses were up sharply 24% in constant currency to $124 million while Proclear contact lens sales edged up 4% to $80.4 million.

The smaller women’s health segment (19.7% of company-wide revenues) CSI performed well with revenues soaring 37% year over year (up 2% barring acquisitions) to $78.2 million. Cooper witnessed mixed contributions from operating units under its CSI segment.

Cooper, a global medical products company, specializes in a wide range of contact lenses for the vision correction market with a smaller strategic business unit for women’s health. It reportedly holds the number three position in the $6 billion global contact lens industry.

The company is a leader in the high-margin toric lens market. It offers multiple designs of toric lenses, across a wide range of parameters, unlike some of its competitors, who offer toric lenses in a limited number of designs. Cooper is benefiting from strong demand for its toric lenses.

However, Cooper faces formidable competition in each of its major product lines. Competition comes from well established global contact lens makers such as Johnson & Johnson (JNJ - Free Report) and Novartis (NVS - Free Report) . Depressed levels of consumer spending have heightened the company’s competitive pressures. The stock currently retains a Zacks #2 Rank, which translates into a short-term “Buy” recommendation.

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