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Wednesday, 06/26/2013 8:26:18 AM

Wednesday, June 26, 2013 8:26:18 AM

Post# of 33
The stock is now down by more than 11% from its highs. This is the trend with most pharmaceutical stocks as the corrective mood in the market has added to the pressure from profit booking. The weakness in Covidien is highlighted by the fact that it is trading below crucial levels and bounces have not sustained so far. Over the years, the stock has done great for the investors with good appreciation from the lows of around $28 made in 2009. The returns have been good during the past one year also, and stock is still up by 16% on a 52 week basis. The correction has reduced the pressure on valuations and now it is trading around 16 times ttm earnings. Over the years the growth has been more uniform and the revenue and net income have grown. However, there has been some tapering off recently. In the last quarter, the sales had grown by about 5%, but the net income had fallen by about 12%. Future success depends on its ability to deliver new devices / drugs from time to time. Medical devices comprise 68% of its sales and hence it is imperative to bring innovative products to support growth in revenues. Even smaller medical device companies are bringing out interesting products like RenalGuard from PLC Systems (PLCSF) which has got several patents from US / Europe. Covidien recently announced good progress in trials of some of its products. Its Kendall SCD system with Vascular Refill Detection Technology was found to be effective in decreasing development of proximal deep vein thrombosis (DVT). Analysts remain positive on the stock with Goldman Sachs (GS) expecting acceleration in sales and earnings from the second half of FY14. The analysts have a consensus buy recommendation on Covidien with the average price target of around $72 (17-18% appreciation).

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