Dublin-based pharmaceutical and medical device company Covidien plc (NYSE:COV) recently announced that it had authorized a share buyback program that could be worth up to $2 billion. This announcement comes just a few months after the company boosted its dividend by more than 15 percent and issued several quarters of solid earnings. To make matters even more interesting, the company appears to be nearing the completion of its long-awaited spin-off of Mallinckrodt Pharmaceuticals (MKG – not yet listed).
Taken together, these factors appear to make a convincing case for Covidien plc (NYSE:COV)’s short-term performance. Despite exhibiting market-beating performance thus far this year, Covidien plc (NYSE:COV) is perennially overlooked in favor of larger and more “popular” medical firms like Pfizer Inc. (NYSE:PFE) and Medtronic, Inc. (NYSE:MDT) . If the company can translate these positive signs into lasting momentum for its stock, those who take long positions in Covidien plc (NYSE:COV) at these levels could be handsomely rewarded.
Covidien is a diversified manufacturer and distributor of various medical devices and products that can be used in institutional and private settings. It specializes in producing devices that can be used during surgery, including surgical staplers, vessel-sealing products, and laproscopic equipment for minimally invasive procedures. Covidien plc (NYSE:COV)also makes a number of tissue repair and wound care products and devices. Separately, Covidien plc (NYSE:COV) engages in a number of pharmaceutical development operations and currently spends about 4 percent of its gross revenues on research. Its signature pharmaceutical products include various pain relief drugs and imaging agents. Covidien earned $1.9 billion on gross 2012 revenues of about $12 billion.
It goes without saying that the pharmaceutical and medical device industries are frighteningly competitive. Covidien has several major pharmaceutical competitors, including companies like Pfizer Inc. (NYSE:PFE) and Merck (MRK). Like Covidien, Pfizer Inc. (NYSE:PFE) engages in the development of a variety of pharmaceutical products. Since it focuses specifically on drugs and drug delivery systems, Pfizer Inc. (NYSE:PFE) may be better positioned to compete in this market. However, it has been widely reported that the company faces a “patent cliff” and will need to work to replenish its development pipeline. With revenues of around $59 billion, Pfizer Inc. (NYSE:PFE) is several times larger than Covidien.
Covidien also competes with medical device manufacturers like Medtronic. Many of Medtronic’s most important devices deal with various cardiovascular issues, including arrhythmia, heart failure, fibrillation and other problems. The company also produces devices that are designed to combat kidney failure and other renal issues. Medtronic is one of the world’s largest providers of musculoskeletal therapy devices and surgical aids. With revenues of around $16.5 billion, Medtronic is roughly the same size as Covidien.