China Cord Blood Corp (CO): A Steady Growth Outlook Is Not Fully Reflected in This Company’s Share Price

China Cord Blood Corp (NYSE:CO) operates stem cell storage facilities in China and has delivered strong growth over the past year. However, the stock price has not reflected this growth. KKR & Co. L.P. (NYSE:KKR) took a 24% stake in China Cord Blood Corp (NYSE:CO) for $270 million last year and could look to increase the size of its ownership position in the company or engage in a buyout.

China Cord Blood Corp (NYSE:CO) engages in the provision of umbilical cord blood storage and other related services in China. It conducts cord blood testing, processing and storage. It does lab testing, hematopoietic stem cell processing, and storage of stem cells. The company tests, processes, and stores cord blood and also provides a matching service. Its cord blood banks are located in Beijing, Guangdong, and Zhejiang provinces.

Trends are positive for long-term growth

The stem cell storage industry is still relatively small in China. Stem cells have the potential to treat immune and blood disorders as well as certain cancers. Only around 1% of births utilize storage services from a company like China Cord Blood Corp (NYSE:CO), whereas in Hong Kong, 15% use this service and 22% in Taiwan. As the average Chinese consumer’s disposable income rises, utilization of stem cell storage should rise and start to reflect levels in wealthier parts of the region. In addition, the one child policy in China can also help drive industry growth with increased importance and spending focus on a single child. Stem cell storage is a more likely use of an incremental disposable income because of the one child policy.

Cord Blood is currently working to secure licenses in three additional provinces in China to expand its geographic footprint. This would accelerate already strong revenue and earnings growth at the firm. Revenue increased 12% in 2012. It is also very noteworthy that it has exclusive rights to the Chinese provinces where it already operates.

Analyst estimates currently reflect flat earnings growth in FY13 and FY14. The company did benefit from a Dragon Year boom in babies that led to above average subscriber growth for its services. Management expects subscriber growth to decline now in the year of the Snake. Revenue is expected to increase by about 25% in FY13 and close to 10% in FY14 according to analyst estimates.