Why Cooper Earnings Could Look Healthier

Cooper (COO -0.69%) will release its quarterly report on Thursday, and with the stock trading at all-time highs, investors are looking for strong results from the company. Despite some headwinds that have hurt other medical-device makers, Cooper earnings appear likely to grow both this quarter and well into the future.

Cooper has focused on two major segments for its success. On one hand, it makes vision-care products, with an emphasis on contact lenses. Yet Cooper also makes products to supply medical professionals specializing in obstetrics and gynecology, with the goal of improving health care delivery to women. Let's take an early look at what's been happening with Cooper over the past quarter and what we're likely to see in its report.

Stats on Cooper

Source: Yahoo! Finance.

How far can Cooper earnings climb?
Analysts have gotten more optimistic about the prospects for Cooper earnings in recent months, boosting their July quarter estimates by a nickel per share and their full fiscal-year projections by more than triple that amount. The stock has continued its strong move upward, rising 17% since late May.

Cooper carried its positive momentum from last quarter, reporting solid results from its fiscal second quarter. Earnings climbed 36% on an 11% jump in revenue, with CEO Bob Weiss specifically referring to the company's newly launched MyDay single-use contact lenses as an example of its success in delivering on its long-term goals. The company managed to increase its margins in part by cutting royalty payments on its silicone hydrogel lens sales, and Cooper also reduced its outstanding debt by more than a fifth during the quarter.

Part of Cooper's success has come from identifying and delivering on customers' wants and needs. In vision, sales of one-day contact lenses carry much higher profit margins than its monthly lenses. That's consistent with the experience of health care giant Johnson & Johnson (JNJ -0.84%), which also specifically noted daily lenses as a growth opportunity for its worldwide vision-care business. Cooper recently got an analyst upgrade that cited continued strength in contact lens sales in projecting a favorable outcome for shareholders.

But Cooper has also been smart about strategic moves. In May, it announced the sale of its Asahikasei Aime unit to Nippon Contact Lens. The original purchase of the unit in 2010 helped Cooper with sales of its Biofinity contact lenses in Japan, but the unit's weaker margins led Cooper to seek to sell it off.

One key question for Cooper is whether it could be a takeover target. Valeant Pharmaceuticals' (BHC -0.80%) $8.7 billion purchase of Bausch & Lomb heightened awareness of the value of vision-related businesses. With Cooper's market cap at $6.4 billion, a takeover deal would likely cost about the same amount including an acquisition premium.

In the Cooper earnings report, watch to see how the company's market share in the contact-lens market is faring, especially with its new one-day offerings. In addition, with the women's-health unit having posted faster revenue growth in past quarters, you'll want to pay attention to whether that trend continues to support Cooper's overall growth rates.

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