Goldman Sachs maintains Neutral on Covidien (COV)
Thursday, January 26, 2022 10:21 AM

Goldman Sachs has maintained Neutral rating on Covidien (COV) and retained the price target too after the company reported its first quarter results and lowered revenue outlook on currency effect.

The company reported adjusted earnings of $1.13 per share compared to Goldman Sachs and consensus estimate of $1.04 a share. However, revenues of $2.898 billion were 1.2 percent lower than Goldman Sach’s prediction of $2.932 billion and 0.8 percent weaker than consensus estimate of $2.922 billion.

Covidien increased 2012 FX neutral revenue outlook by 100 basis points to 3 percent – 5 percent compared to Goldman Sachs’ estimation of 4.0 percent. Significantly, the company maintained its operating margin and tax rate targets.

The company also revealed that it was comfortable with current full year 2012 consensus earnings estimate of $4.26 per share.

The brokerage believes that first quarter results were below its predictions in devices and supplies, whereas pharma was essentially in line. Yet the company recorded gross margins of 58.5 percent, above than Goldman Sachs’ estimation of 57.2 percent. This has resulted in 1.2 percentage points year-on-year increase thereby adding 13 cents a share to its first quarter earnings per share.

Analyst David Roman also saw selling, general and administrative costs witnessing 60 basis points down year-on-year thereby adding 7 cents to EPS in the quarter, while R&D increased 20 percent or plus 70 basis points as a percentage of sales thereby dragging 3 cents a share down to EPS. The analyst also feels that better EBIT margins offset lower sales relative to the model.

The brokerage viewed the retention of EPS outlook and strong quarterly results as a relief and maintained price target with COV up 10.5 percent YTD versus S&P 500 up 5.4 percent.