Cooper Companies (COO)

The methods disagree: one places the value today above the price ($56) and the other below.

Today — expensive, no margin of safety: at $56 trades ~13.3% above its value discounted to today (~$49); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($61) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$30.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($56) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (0.1%/year) than we project (3.1%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.6 bn of owner earnings in year 5 (vs ~$0.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on NOPAT (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Enterprise-level model on a normalized basis: to GAAP operating profit for the trailing window (US$544 million, 12.8% of revenue) is added the US$274.4 million fertility litigation charge the company recognizes in the first nine months of fiscal 2026 —the bulk of it the US$271.6 million of April 2026, settled across more than 95% of claims—, leaving US$818 million and a 19.3% margin. The multiple is applied to after-tax operating profit, which is pre-interest, so cash (US$155 million) and debt (US$2,543 million) enter the bridge and funding is charged once. Year 0 is the trailing twelve months ended July 31, 2026, incorporated from the 8-K of September 9, 2026. Year 1 falls from +5.1% to +3.1% because the company cut its guidance in that same release: fiscal 2026 revenue of US$4,229 to 4,252 million against the US$4,285 to 4,321 million guided in June, and adjusted diluted earnings per share of US$4.51 to 4.55 against US$4.58 to 4.66. The +1y window contains the guided fourth quarter —revenue of US$1,057 to 1,080 million, with organic growth of 0% to 2%— plus the first three quarters of fiscal 2027, and carries the declared effect of the proactive reduction of U.S. channel inventory, which weighed on the third quarter and which management warns will keep weighing on the fourth. From there the path stabilizes at ~4% a year, the blend of the underlying growth of the two businesses (contact lenses, two thirds of revenue, at a guided 1% to 2% organic; fertility and women's health at 4% to 5%) once the inventory effect runs its course. Adjusted diluted earnings per share is used only as a directional reference, not as the basis of the metric, because it recurrently excludes amortization of acquired intangibles (~US$190 million a year) and a tax benefit from an intra-entity transfer: the method values on owner earnings normalized solely for the litigation charge. The normalized margin expands from 19.3% to 20.7% by year 5, supported by the cost-reduction and efficiency programs the company announced on closing its strategic review, and the adverse scenario compresses it to 16.8% on price pressure and on the competitive entrant in the non-hormonal intrauterine device market that the Board itself cites. Net income for the trailing window (US$570 million) is inflated by a US$307.2 million discrete tax benefit from the favorable completion of the British tax authority's examination of the 2021 intellectual property transfer; that benefit is not projected, which is why the year-0 net margin is set at 11.4%, the figure that results from normalized operating profit less interest. Capital expenditure for the trailing window (US$355 million) is somewhat below depreciation and amortization (US$384 million), so nearly all capital expenditure is maintenance (maintPct 0.95), consistent with a business that is not in an aggressive capacity-expansion phase. Buybacks are accelerating: the company retired 3.3% of its shares over the year (193.4 million average diluted in the quarter against 200.0 million a year earlier), repurchased US$644 million in the trailing window, and the Board expanded the authorization from US$2,000 to US$3,000 million, of which ~US$1,500 million remains. The path models 2.5% a year —below the 3.3% revealed, because the quarter's pace (US$339 million) annualized exceeds trailing-window free cash flow (US$678 million) and is not sustainable— and it is a single path across all three scenarios, because it derives from one revealed behavior. The exit multiple stays within the 16x to 22x medical device band: base 18x, adverse 16x and favorable 21x.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $61 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $56, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $61 in 5 years and a required return of 4.5% annually, the maximum to pay today is $49. Against the current market price ($56), the margin of safety is -13.3% (trades above the maximum → a premium is paid) and the total return at that price would be 1.9% annually.

• Current normalized multiple. 24× the strictly normalized result (ex-litigation alone), well above the 16-22× band.
• Company non-GAAP basis. On FY2026 non-GAAP earnings per share guidance ($4.58-4.66) the multiple looks within the band, but that basis excludes the amortization of acquired intangibles that the method does charge.
• Case base margin of safety. The case base 5-year value comes in below the current price.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (109%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs the 10% bar. Normalized ROIC ~4.8% on invested capital, below the bar, dragged by acquisition goodwill.
• CooperVision margin. 27% and expanding, the quality motor of the consolidated.
• CooperSurgical margin. Fell from 9% to 3% in FY2025 due to charges, severance, and higher amortization.
• Capex vs D&A. TTM capex ($383.5M) roughly equal to D&A ($384.7M), consistent with a company in maintenance mode rather than aggressive expansion.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

CooperVision monetizes through periodic contact lens replacement (user volume × price per product category); CooperSurgical combines recurring device/consumable sales (Paragard, culture media) with long-term subscription revenue (cell storage custody). The deterioration of CooperSurgical's operating margin between FY2024 and FY2025, and its fresh charge in second quarter fiscal 2026, is the most sensitive variable in the model: if it does not reverse, normalized consolidated earnings stay structurally below what the market's current multiple suggests.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• FY2026 guidance. +3.5/+4.5% organic, below the historical FY2023-FY2024 pace.
• MiSight. Recent approval in Japan (August 2025) opens a new high-margin market.
• Paragard and genomics in CooperSurgical. Office/surgical +6% and fertility +3% in FY2025, steady but not accelerating engines.
• Deceleration vs history. Growth of +8.6%/+8.4% in FY2023-FY2024 slowed to +5.1% in FY2025.

• CooperVision regulatory niche. MiSight is unique in its category in the three largest jurisdictions.
• Broad portfolio in CooperSurgical. Over 600 products and services, useful as sole supplier to consolidating clinic chains.
• Manufacturing concentration. Certain high-volume products are made at a single regulatory-approved site.
• International exposure. Roughly half of revenue originates outside the U.S., with foreign exchange and tariff exposure.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 2.0x
• ✓Interest coverage (EBIT / interest)9.6x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 109% of ROIC
• ✕Value creation (ROIC − 10% bar)-5pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.9x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 1.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt ~$2.46bn against equity of $8.24bn, manageable.
• Litigation reserved. Over 95% of claims already covered by settlement, with most payments expected during FY2026.
• Cash generation. TTM OCF of $953M finances buyback and capex comfortably.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Directors and executives as a group own only 2.08% of shares; no founder or control shareholder.
• Capital allocation. Sustained buyback ($290.1M in FY2025 + $13.1M in Q2 FY2026) after dividend end in December 2023.
• Internal controls. Material IT control weakness in CooperSurgical (ERP), in place during FY2024 and remediated by October 2025.

• The market appears to value Cooper on the company's own non-GAAP earnings (FY2026 non-GAAP EPS guidance $4.58-4.66), which excludes some ~$190M/year of acquired intangibles amortization and an intra-entity tax benefit.
• The second quarter fiscal 2026 litigation charge was settled on over 95% of claims, which can read as a sign that legal risk steps back and supports confidence in the current multiple.
• CooperVision maintains a solid growth narrative (MiSight, Biofinity, MyDay) that may be anchoring the consolidated multiple above what CooperSurgical alone justifies.

No clear sources of discount identified (missing buyers / motivated sellers): the current price is sustained by a broader earnings base than this method recognizes, not by a perception-reality gap in the buyer's favor.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -9%/year (-36% total): the margin of safety protects the downside. The bull (+11%/year, +70% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Remaining litigation. Less than 5% of claims still uncovered by settlement.
• Price pressure. Fixed-price and capitated contract structures in CooperSurgical.
• Regulatory/reimbursement. Changes to Medicaid/ACA and Medicare price negotiation (IRA) from 2026.
• Systems integration. ERP migration underway following FY2024 IT control weakness.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 5% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 3% at a multiple/growth of 7.8 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 6% (EBIT/EV) + ROIC 5% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 0% vs our 3%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -9%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 0%, within what we project (3%) — the story squares with the numbers.