Goldman Sachs Raises Price Target For Covidien (COV)
Friday, January 27, 2022 9:28 AM

Goldman Sachs has increased its price target for Covidien (COV) shares to $52 from $49 given higher outer year EPS outlook. This follows after the company announced its first quarter results.

The brokerage is also increasing its revenue estimations in Medical Devices given evidence of continued strong new product adoption, offset by lower sales in Medical Supplies. Analyst David Roman lifted gross and operating margins following greater Medical Deices mix shift. As a result of these changes, he has increased EPS estimates for FY2012 to $4.26 from $4.18, FY2013 to $4.49 from $4.45 and FY2014 to $4.91 from $4.65.

Goldman Sachs sees sales and EPS growth of 1.7 percent and 7.2 percent respectively for 2012 with three-year EPS forecasted at 8.2 percent.

The brokerage believes first quarter results produced sustained positive impact of Covidient’s past investments. The company continues to reinvest a meaningful percentage of gross margin increases into R&D. The brokerage expects selling, general and administration to ramp throughout the year.

The analysts thinks that key focus for Covidien would be to continue to generate growth in excess of end-user markets. He also sees the 2012 outlook puts underlying growth of 4.5 – 7 percent about 1.5 percentage points more than where core markets are growing by its estimates. The analyst also feels that due to business mix and new product flow, this does not seem like a stretch. But he thinks that prospects for upside are limited in the absence of a broader recovery in healthcare utilization.

The brokerage continues to see a rebound in volumes as an unlikely near-term event based on Goldman Sachs medical cost trend model.

Goldman Sachs has listed share loss, pricing pressure and stronger US dollar for downside risk, while new product adoption, EM penetration and end market recovery are viewed for upside rewards.