NEW YORK (TheStreet) -- With shares of Covidien (COV) now resting near their 52-week high, it would seem this company is back in the Street's good graces. For a while, analysts did nothing but complain about potential adversities following the spinoff of the pharmaceuticals business to Mallinckrodt (MNK). It was all for nothing.
I've been a long-time supporter of this company. In fact, since I first recommended the stock last May, shares of Covidien have soared more than 30%. It didn't take long for management's decision to pay start paying dividends. Investors who listened to me did very well.
The Street, meanwhile, was busy inciting fear about Covidien's prospects. I saw something else. While larger med-tech rivals like Abbott Labs (ABT) and Johnson & Johnson (JNJ) began showing signs of slowing growth, Covidien looked revived. The company began posting solid results quarter after quarter.
Management seemed more focused. They were operating with pinpoint execution. But I don't believe some analysts truly understood what management was actually trying to do. They cited the spinoff as some negative event, solely on the basis of lost revenue.
In actuality, the outcome produced a much leaner operation - one with the potential for long-term margin expansion. And with another solid beat this quarter in both revenue and profits, management is leaving no stone unturned to continue proving the Street wrong.
Revenue was up 3% this quarter on a reported basis. Even more impressive was that the company posted 5% organic growth, which beat Street estimates by 1%. Aside from the spinoff of the pharmaceuticals business, the company has never been shy about doing deals to grow the top line.
In December, Covidien spent $860 million to acquire Given Imaging (GIVN), a company with close to 90% global share in the growing endoscopy market. It was a worthwhile deal with the gastrointestinal market worth an estimated $3 billion. But with organic growth advancing 5%, management is demonstrating that it still has a strong grip on the core operation.
What's more, with 8% growth in the Surgical Solutions, the company is performing as better (in some cases, better) than Johnson & Johnson and Stryker (SYK). And contrary to what is being said, with revenue in neurovascular advancing 4% this quarter, I don't believe Stryker has significantly outperformed Covidien.
On an operational basis, management deserves some credit for a solid margin performance, which arrived ahead of expectations. While some companies would deserve a slap on the wrist for a decline in operating income, management remains aggressive about growth. I don't mind any increases in research and development, especially when operating margin continue to trend in the right direction.
The other thing that impressed me about these results was the company's 14% growth in emerging markets. What this means is that management has figured out how to grow outside of the U.S. Now this may seem as an afterthought, but it really isn't.
This, too, supports why Covidien opted to pay a 27% premium in its deal for Given and that company's large global reach. So management was buying growth overseas, which is all a part of Covidien's long-term strategy. Yet, at the time of the announcement, analysts criticized Covidien for "over-leveraging itself," citing how Covidien was "not cash-rich company."
The story is much different today. The Street is now pretending as if it was completely on-board. All told, I still like Covidien, which I believe will remain a standout in med-tech. But the easy money has already been made. And with the company no longer able to sneak up on anyone, the pressure is on management to find more ways to prolong its string of strong performances.
While I'm willing to bet the company has several more quarters of exceptional growth ahead, I do believe the stock is fully valued here at around $72 per share.
At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.