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CFN Acquires Vital Signs, Boosts International Presence

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CareFusion Corp. (CFN) revealed that it has signed an agreement to acquire Vital Signs division of GE Healthcare for $500 million that will not only expand its Specialty Disposables business under the Procedural Solutions segment internationally but establish itself as a leader in the $3 billion market for respiratory and anesthesia consumables. Following the announcement, share price of the company rose 0.7% till yesterday.

Vital Signs, with annual revenues of $250 million, manufactures single-patient-use consumables for respiratory care and anesthesiology as well as distributes products for temperature management and patient monitoring consumables. It operates in three locations globally, including manufacturing operations in Shenzhen, China.

CFN generates one-third of its revenues outside the U.S. With the acquisition of Vital Signs business, CareFusion will be able to expand its global scale and provide more than 20,000 single-use consumables for respiratory care and anesthesiology, including circuits for oxygen and anesthesia, humidification, masks, filters, pressure infusers and temperature management products.

The acquisition is expected to result in synergies of $10 to $15 million per annum on a pretax basis by fiscal 2017. It is expected to be neutral to modestly accretive to CareFusion adjusted earnings per share in fiscal 2014 and accretive in fiscal 2015 by 5 to 8 cents, excluding amortization of acquired intangible assets, non-cash inventory valuation step-up charges, and nonrecurring restructuring, integration, and tax charges. Further, CFN expects continued earnings accretion in fiscal 2016 and beyond.

CareFusion will acquire the Vital Signs business in the U.S., China and other countries by Dec 31, 2013. The company expects to finalize the remainder of the transaction during its third quarter, ending Mar 31, 2014. Vital Signs will be the eighth acquisition of CFN since 2010.

CareFusion, a Zacks Rank #3 (Hold) stock, posted flat adjusted earnings per share of 44 cents for the first quarter of fiscal 2014 compared with the comparable quarter a year ago but exceeded the Zacks Consensus Estimate of 40 cents. Adjusted net earnings fell marginally by 3% to $96 million from $99 million a year ago.

Revenues in the quarter dipped marginally by nearly 1% (both in reported and constant currency) to $830 million, topping the Zacks Consensus Estimate of $818 million. The decrease was driven by fall in Medical Systems revenues.

Revenues from its Procedural Solutions rose 7% $306 million, driven by double-digit revenue increases in both the Medical Specialties and Specialty Disposables businesses. Segment profit rose 2.4% to $42 million, driven by higher gross margin that was partially offset by increased investments in R&D. On an adjusted basis, segment profit grew 8.3% to $52 million from $48 million in the prior-year quarter.

For fiscal 2014, CFN continues to expect revenues to grow between 1% and 4% on a constant currency basis. Adjusted earnings are also expected to lie in the previously guided range of $2.30 to $2.40 per share.

The guidance is based on an assumed weighted average outstanding share count of approximately 215 million, which includes the impact of expected share repurchases during fiscal 2014.

Some better-ranked stocks that worth a look in the medical products industry include Hill-Rom Holdings, Inc. (HRC), NuVasive, Inc. (NUVA), and Exactech Inc. (EXAC). Hill-Rom and NuVasive carry a Zacks Rank #1 (Strong Buy), while Exactech carries a Zacks Rank #2 (Buy).

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