CareFusion to Float $1B Senior Notes; Shares Up - Analyst Blog

CareFusion Corporation CFN recently announced its plans to float three series of senior unsecured notes for an aggregate principal amount of $1 billion. The company aims to use the proceeds to repay another $450 million worth of senior debt maturing this year.

Of the $1 billion senior notes, $300 million will mature in 2017 bearing an annual interest rate of 1.450%, $400 million will mature in 2024 with an annual interest rate of 3.875% and $300 million will be due in 2044 bearing an annual interest rate of 4.875%.

Post the announcement, shares of CFN climbed approximately 4.3% to close at $42.95 yesterday. In fact, shares of this CA-based medical technology company have been gaining momentum since it reported strong third-quarter fiscal 2014 (ended Mar 31, 2014) results on May 5. The stock also scaled a new 52-week high of $43.33 in intra-day trading on May 19.

The expected proceeds of $987.9 million from the offering will be deployed by CFN to retire the $450 million worth of 5.125% notes due in 2014, while the remainder is intended to be used for general corporate purposes.

The offering is slated to close on May 22, subject to customary closing procedures. Barclays Capital – part of Barclays PLC BCS, J.P. Morgan Securities – part of JPMorgan Chase & Co. JPM and Merrill Lynch, Pierce, Fenner & Smith Inc. are acting as joint book-running managers for the offering.

As of Mar 31, 2014, CFN had $690 million worth of 6.375% senior notes that are due in 2019 and $298 million worth of 3.300% senior notes maturing in 2023. CFN's total debt stood at $1,456 million as of Mar 31, 2014, up 0.7% from $1,446 million as of Jun 30, 2013.

Recent Earnings

For the third quarter of fiscal 2014, CFN posted adjusted earnings per share of 60 cents compared with 59 cents in the same quarter a year ago, missing the Zacks Consensus Estimate by 3 cents.

Revenues in the quarter rose 7.4% (both in reported and constant currency) to $968 million driven by growth in the Procedural Solutions segment. Revenues, however, lagged the Zacks Consensus Estimate of $979 million.

Adjusted operating expenses inched up 3.3% to $284 million during the quarter owing to the recent acquisitions of Vital Signs, a manufacturer of single-patient-use consumables for respiratory care and anesthesiology, and Sendal, an infusion specialty disposable manufacturer in Spain. Consequently, adjusted operating earnings fell 2.5% to $196 million from $201 million a year ago.

CFN raised its revenues and earnings guidance for fiscal 2014. The company anticipates revenues to grow between 5 and 7%, up from the prior range of 4 to 7% and organic revenues to grow between 2 and 4%, up from the prior outlook of 1 to 4%, both on a constant currency basis.

Adjusted earnings are expected to lie in the previously guided range of $2.30 to $2.40 per share for fiscal 2014. The current Zacks Consensus Estimate of $2.31 lies within the guided range.

Zacks Rank

CFN carries a Zacks Rank #3 (Hold). Currently, Cardica Inc. CRDC is a better-ranked medical product stock with a Zacks Rank #2 (Buy).