Johnson & Johnson (JNJ), Novartis AG (ADR) (NVS): The Cooper Companies, Inc. (COO) Leveraging Share Gains for Eye-Opening Growth

Not unlike the company’s exclusive distribution agreement with Utah Medical Products, Inc. (NASDAQ:UTMD) for the Filshie Clip, a surgical contraception device, I believe there are many other products or companies in the $10 million to $40 million a year range that Cooper could consider acquiring or licensing to better leverage its own sales infrastructure.

The bottom line

Revenue growth prospects here look strong, but that’s only part of the story. Future reductions in royalty expenses, better manufacturing margins, and better operating leverage could all combine to deliver some significant margin leverage here, enough to vault the company into the low 20% range for free cash flow margin. With that, a long-term free cash flow growth rate of more than 10% is not out of line.

Unfortunately, none of this is lost on the Street, and these are not cheap shares today. It’s difficult for me to get above a fair value of $115 on cash flow alone, though I do acknowledge that med-tech stories combining market share growth and margin leverage can go much higher than cash flow valuations would suggest. With that, I’d be in no rush to sell Cooper, but I might try to wait for a pullback before investing new money in it.

The article Cooper Leveraging Share Gains for Eye-Opening Growth originally appeared on Fool.com and is written by Stephen D. Simpson, CFA.

Stephen D. Simpson, CFA has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. 

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