We are reverting to a Neutral recommendation on Hospira Inc. (HSP) from Underperform. Our target price is $37.00. The stock carries a Zacks Rank #3 (Hold) in the short run.
Why the Upgrade?
Hospira reported higher-than-expected earnings in the first quarter of 2013 on the back of better-than-expected revenues. The Specialty Injectable Pharmaceuticals segment, the biggest contributor to the company’s top line, performed well in the first quarter of 2013 with segmental sales climbing 11.1% (up 11.4% at constant currency) to $651.5 million. The SIP segment includes generic injectables as well as proprietary specialty injectables. The segment includes offerings, such as the generic version of Sanofi’s (SNY) cancer drug, Eloxatin.
We are impressed by the global strategy announced by Hospira in May 2013 regarding its devices portfolio. Through this strategy, Hospira aims to modernize and streamline its device portfolio in order to drive growth and serve customers in a better manner. Under the program, the company intends to remove its relatively old pump technology from the market and bring in customer replacement programs over the next few years. Moreover, Hospira intends to develop next-generation pump technology. The company will focus on strengthening its global device quality system to facilitate growth. We believe that this strategy will enable Hospira to sustain long-term growth.
We note that Hospira is going through a rough patch due to the ongoing manufacturing challenges at its Rocky Mountain facility as well as issues with the Symbiq/Plum pumps. Manufacturing issues at some of the company’s other facilities are further challenges for Hospira. We believe all the negatives are already reflected in the stock price and hence revert to a Neutral recommendation on the stock.
OtherStocks to Consider
We note that stocks such as Conceptus, Inc. (CPTS) and AtriCure, Inc. (ATRC) appear to be more attractive than Hospira in the medical sector. While Conceptus carries a Zacks Rank #1 (Strong Buy), AtriCure carries a Zacks Rank #2 (Buy).
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