Covidien Limited (COV) has surprised on estimates 3 out of the last 4 quarters. The company also recently raised its dividend. Covidien is trading at 13.6x forward earnings.

Company Description

Covidien manufactures medical devices, medical supplies and imaging solutions. It has pioneered the use of contrast media, electrosurgery, surgical stapling and laparoscopic instrumentation.

It has 16 manufacturing facilities in 16 countries and sales representatives in 50 countries worldwide. 45% of its sales are outside the United States.

Covidien Raised Its Dividend

On Sep 25, Covidien joined the rare club of companies that actually raised its distribution payment in the last 12 months. The company announced a 12.5% increase to 18 cents from 16 cents per share payable on Nov 6 to shareholders of record as of Oct 6.

The current yield is 1.65%.

Earnings Surprise Streak Broken

When I last reviewed Covidien as a value stock in April, it had surprised on estimates 7 quarters in a row and I asked if it would keep the streak alive.

Read the April 23, 2009 article.

It didn’t, as it missed for the second quarter by 18.82%. But the company beat once again in the third quarter by 12.12%.

Covidien is expected to report fourth quarter results on Nov 17. Analysts have been holding estimates at 70 cents per share, raising 1 cent over the last 60 days.

For the full-year, the Zacks Consensus Estimate jumped 8 cents to $2.83 from $2.75 per share in the last 2 months.

Analysts are even more bullish about fiscal 2010. They project earnings to grow 13.55% to $3.21 per share.

Sales Rose in the First 9 Months

For the first 9 months, sales rose 5% to $7.3 billion from the year ago period. Unfavorable foreign exchange rates lowered growth by 5%.

Sales rose 13% in the United States but declined 5% in other markets. Pharmaceutical Products sales were the best performing segment, rising 53% to $1.1 billion from $717 million in the same period a year ago. Oxycodone hydrochloride extended-release tablets contributed $354 million to the sales.

Imagining Solutions sales fell 8% to $840 million from $914 million a year ago while Medical Devices sales were essentially unchanged.

Value Fundamentals

Covidien is a Zacks #1 Rank (strong buy) stock. It is trading with a price-to-book of 2.71. It has a 1-year return on equity (ROE) of 18.79%, well above the industry average of 10.29%.

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