Wednesday, December 27, 2006

Calls of Note Part 4

- Wachovia questions the rationale for the latest bounce in The Cooper Companies (NYSE:COO) shares, as both their recent checks and disclosures in the company's newest SEC filing raise concerns that appear likely to prevent a sustainable share-price recovery in the foreseeable future.

Firm's checks show that COO is offering select high-volume practitioners a 10% discount on inventory orders placed between December 22 and December 31 for immediate shipment. The promotion suggests COO is fighting a sales slowdown in its quarter ending January 31. Firm's concerns over the magnitude of any potential sales shortfall are heightened by comments from an industry source, who indicated that, to the best of his knowledge, the company has never before made such an offer of this kind.

COO's 2006 10-K, filed Tuesday, also raises a few cautionary flags. There are several 10-K disclosures (some new) that could negatively affect COO's tax rate, which the Street currently assumes can be maintained in the low-to-mid-teens range. Tax-related issues include FIN 48, a FASB interpretation implemented in July that clarifies the conditions for realizing a tax benefit. COO indicates that it still has not determined the impact FIN 48 will have on its financial

Firm's checks and the incremental 10-K findings suggest that COO is not yet on the road to recovery. They continue to advise remaining on the sidelines in this name. Valuation range $44 to $46.

Notablecalls: While I'm not questioning the contents of the call, the timing may be somewhat off as it's very early in the qtr. The co may just be pushing hard to get the product rolling. On the other hand demand may be so weak the co has discount hard already early in the qtr. COO is not an expensive stock and is considered to be a turnaround story. Tough to call this one. In case you feel inclined to short this one the $46 level should act as the leash.

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