The Cooper Companies, Inc.

(NASDAQ Global Select)
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Somewhat Bearish -25

Why Is Everyone Ignoring Cooper Companies Stock's High Cash Yield?

Earnings report AI-generated analysis

πŸ“ˆ Cooper Companies generated $678 million in free cash flow over the twelve months to July 31, 2026, representing a significant increase from $189 million two years prior.

πŸ“‰ The stock price has declined 13.3% over the past year despite producing a 5.6% free cash flow yield, underperforming the S&P 500 which returned 12.2%.

πŸ“‰ CooperVision's fiscal Q3 2026 revenue was flat year-over-year at $717 million, prompting management to cut its organic growth forecast for fiscal 2026 to 1.5%.

βš–οΈ Operating margins fell to 12.8% from 18.3% a year earlier due to a $271.6 million charge taken in fiscal Q2 2026 to settle litigation in the fertility business.

πŸ’Έ Management expects approximately $272 million in litigation-related payments and $170 million in free cash flow for fiscal Q4, excluding these costs.

πŸ“‰ Net debt stood at $2.39 billion as of July 31, 2026, representing 19.9% of the company's market value when netted against cash.

πŸ‘· Management plans to hire more salespeople in the U.S. to address a workforce that is smaller than its competitors'.

Bullish Signals
  • Cooper Companies produced free cash flow equal to 5.6% of its market value over the last twelve months, significantly higher than the 4.2% median for S&P 500 companies.
  • The company generated $678 million in free cash flow over the twelve months to July 31, 2026, up from $189 million two years earlier.
  • Fiscal Q3 delivered the highest quarterly free cash flow in Cooper's history, driven by stronger operations and lower capital spending.
  • Free cash flow has remained above zero in every twelve-month period since July 2023, demonstrating consistent operational cash generation.
  • Management aims for $2.2 billion of free cash flow across fiscal 2026 to 2028 despite plans to borrow more capital.
Risk Factors
  • Cooper's shares lost 13.3% over the past year while the S&P 500 returned 12.2%, indicating a significant market underperformance.
  • CooperVision's fiscal Q3 2026 revenue was essentially flat from a year earlier, with management cutting its organic growth forecast to 1.5% at the midpoint.
  • Operating margins fell to 12.8% from 18.3% a year earlier due to a $271.6 million charge taken in fiscal Q2 2026 to settle litigation.
  • Management expects roughly $272 million of free cash flow payments related to litigation in fiscal Q4, weighing on near-term cash.
  • Net debt stood at $2.39 billion as of July 31, 2026, representing 19.9% of the company's market value.
Full Analysis
Cooper Companies (COO) has generated significant free cash flow, producing 5.6% of its market value over the last twelve months compared to a 4.2% median for S&P 500 companies. Despite this strong cash generation, the stock price has underperformed the broader market, losing 13.3% over the past year while the S&P 500 gained 12.2%. Management attributes the low valuation to expectations of a shrinking business or high litigation costs, though recent data suggests the underlying cash flow remains robust. The company operates through two main segments: CooperVision, which sells contact lenses, and CooperSurgical, which provides fertility and surgical products. Over the twelve months ending July 31, 2026, the business produced $678 million in free cash flow, a substantial increase from $189 million two years prior. This cash flow represented 16.0% of total revenue, with management noting that fiscal Q3 delivered the highest quarterly free cash flow in the company's history due to improved operations and lower capital spending. However, growth concerns persist specifically within the contact lens division. CooperVision's revenue was essentially flat year-over-year in fiscal Q3 2026, leading management to cut its organic growth forecast for fiscal 2026 to 1.5% from a previous expectation of 4.0%. The slowdown is attributed to inventory adjustments and the phasing out of older hydrogel lenses. Additionally, operating margins declined to 12.8% from 18.3% a year earlier due to a significant $271.6 million charge taken in fiscal Q2 2026 to settle litigation in its fertility business. Looking ahead, Cooper expects to face substantial cash outflows in fiscal Q4, including approximately $272 million in litigation-related payments and $170 million in free cash flow before those costs. The company has increased borrowing to fund these payments and share buybacks, with net debt standing at $2.39 billion as of July 31, 2026. Investors are advised to watch for the December 2026 earnings report, which will provide critical updates on CooperVision's organic growth trajectory and free cash flow performance after accounting for the anticipated litigation expenses.