CooperCompanies (COO): Margin Expansion and Operational Discipline Outperform Sluggish Revenue Growth

When evaluating a company's long-term value, investors often fixate on revenue growth. But in today's market, where macroeconomic headwinds and sector-specific challenges abound, operational discipline and margin resilience can be just as—if not more—critical. CooperCompanies (COO) exemplifies this dynamic. Despite a moderation in organic sales growth and revised guidance, the company's ability to expand margins, optimize costs, and reinvest in innovation positions it as a compelling long-term play. Let's break down why COO's non-GAAP earnings growth and margin expansion could outpace its revenue slowdown.

Margin Expansion: A Structural Strength, Not a Temporary Fluke

CooperCompanies' Q2 2025 results underscore a disciplined approach to margin management. Non-GAAP operating margins expanded to 25% from 24% year-over-year, driven by a 68% gross margin (unchanged from the prior year) and targeted expense leverage. This isn't just a one-off win—it's a structural shift. Over the past five years, non-GAAP gross margins have trended upward, climbing from 65% in 2021 to 68% in 2025. The company's shift toward higher-margin products like MyDay silicone hydrogel lenses and MiSight myopia management solutions has been a game-changer. These premium offerings now account for a growing share of revenue, with MyDay growing 10% YoY and MiSight surging 35% in Q2 2025.

The key question: Are these margin gains sustainable? The answer lies in COO's operational playbook. The company has systematically exited lower-margin product lines (e.g., Clarity) and reinvested in R&D for premium segments. Its capital allocation strategy—$40.6 million in share repurchases in Q2 2025 and $410 million in free cash flow over nine months—further reinforces its ability to reward shareholders while funding innovation.

Navigating Organic Growth Challenges

Yes, organic sales growth has slowed. For fiscal 2025, COO expects total revenue of $4.1 billion to $4.15 billion, with organic growth of 4% to 4.5%. CooperVision, the company's cash cow, is projected to grow 6% to 7%, while CooperSurgical faces a more modest 3.5% to 4.5% organic growth. This moderation reflects broader industry trends, including inventory destocking in the surgical segment and softness in the fertility market.

But here's the twist: COO isn't relying on organic growth alone. Strategic acquisitions—like obp Surgical and Cook Medical—have diversified its surgical portfolio and geographic reach. These moves aren't just about revenue; they're about creating a moat. For example, CooperSurgical's PARAGARD IUD grew 18% YoY in Q2 2025, while its office-based surgical devices saw 13% growth. These niches are less cyclical and offer recurring revenue potential.

Competitive Positioning: Innovation as a Buffer

The medical device sector is fiercely competitive, with rivals like Align Technology and West Pharmaceutical Services jostling for market share. But COO's innovation pipeline gives it an edge. CooperVision's MyDay Energys and CooperSurgical's expansion into myopia management (a $10 billion global market by 2026) are not just incremental improvements—they're category leaders.

Moreover, COO's ESG initiatives, such as its Plastic-Neutral Contact Lens Program, align with long-term value creation. Sustainability isn't just a buzzword here; it's a differentiator in a market where consumers and regulators increasingly prioritize environmental responsibility.

Risks and Realities

No stock is without risks. Regulatory challenges, particularly in the EU under the MDR/IVDR framework, could pressure margins temporarily. CooperSurgical's fertility segment remains vulnerable to macroeconomic cycles, and foreign exchange volatility could dent net sales. However, COO's management has shown a knack for navigating these headwinds. For instance, interest expenses have declined from $28.9 million in Q2 2024 to $24.2 million in Q2 2025, thanks to lower debt and interest rates.

The Bottom Line: Buy for the Long Haul

While COO's revenue growth may lag behind its peers, its margin expansion and operational discipline are structural strengths. The company's ability to pivot toward premium products, optimize costs, and reinvest in innovation creates a flywheel effect: higher margins fund R&D, which drives product differentiation, which sustains margin growth.

For investors, this translates to a stock that can deliver consistent earnings surprises and shareholder returns, even in a slow-growth environment. With a forward P/E of 22 (compared to the S&P 500's 25) and a robust balance sheet, COO offers a compelling risk-reward profile.

Final Call: CooperCompanies isn't a flashy growth story, but it's a masterclass in operational excellence. For those seeking a durable, cash-generative business with a clear path to margin expansion, COO is a buy. Just don't expect fireworks—this is a stock that builds value through steady, disciplined execution.