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Here's Why You Should Add Hill-Rom to Your Portfolio Now

Zacks Equity Research

Hill-Rom HRC is progressing well with growth strategies like acquisitions and product launches. The company’s progress in digital health segment has also bolstered prospects.

This $7.25-billion global medical device company’s earnings growth is estimated to be 11.1% over the next five years. Also, the company has a trailing-four quarter positive earnings surprise of 2.9%, on average.

Robust Q1 Earnings

Hill-Rom exited the first quarter of fiscal 2020 with better-than-expected earnings and in-line revenues. Core revenue growth was 6% year over year, at the high end of its guidance. This reflected the seventh consecutive quarter of mid-single-digit or higher growth. The company saw robust domestic growth, driven by sturdy performance by Patient Support Systems. There was strong double-digit growth in Latin America and China for the second consecutive quarter. 

Let’s delve deeper into the other factors that substantiate the company’s Zacks Rank #2 (Buy).

Acquisitions to Add Value: Hill-Rom’s merger and acquisition pipeline continues to remain robust. In the second half of fiscal 2019, the company acquired Breathe Technologies, a developer and manufacturer of a patented nasal cannula technology that enables improved patient mobility. Hill-Rom is now in its early days of re-launching the Breathe Life2000 device, leveraging the company’s vertically-integrated direct commercial model with a disruptive non-invasive respiratory therapy for patients in both acute and home settings. This acquisition is expected to continue driving growth for the company through rest of fiscal 2020.

Focus on Expansion Through Innovation: For quite some time now, Hill-Rom has been focusing on expansion through product development, which is reflected in its rising research and development expenditure. Recently, the company introduced several products, including RetinaVue 700 Imager, EarlySense and WatchCare. In the second half of fiscal 2020, the company is looking forward to a steady cadence of six key new product launches across all three business units. This includes future digital offerings focused on patient falls and deterioration, digital physical assessment tools, and a new mobile operating room table.

Progress in Digital Health Space: Hill-Rom recently launched a smartphone application — Linq mobile. Per the company, the platform has integrated Clinical Workflows with Nurse Call and clinical surveillance with monitoring systems to enhance care team communication and efficiency. This move will pave the way for an additional market opportunity of around $200 million. The company also partnered with Microsoft to bring together Hill-Rom's extensive clinical knowledge as well as streaming operational data from medical devices and Microsoft's cloud, including Azure IoT and Azure Machine Learning.

However, the company is facing certain downsides like persistent decline in blood center revenues, economic uncertainty and tough competition. In the past year, the stock has underperformed its industry. The stock has rallied 4.6%, compared with the industry’s 10.6% rise.

Q2 Estimates

For the second quarter of fiscal 2020, the Zacks Consensus Estimate for earnings is pegged at $1.16, indicating 1.8% rise from the year-ago quarter’s figure. The same for revenues is pegged at $704.8 million, calling for a year-over-year fall of 1.3% from the prior-year quarter’s number.

The Zacks Consensus Estimate for 2020 earnings is pegged at $5.55, suggesting 9.3% year-over-year growth from the year-ago figure. The same for revenues is pegged at $2.94 billion, suggesting a 1% rise from the prior-year number.

Stocks Worth a Look

A few other top-ranked stocks from the broader medical space are Haemonetics HAE, Stryker SYK and ResMed RMD. While ResMed carries a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics has a projected long-term earnings growth rate of 13.5%.

Stryker has an expected long-term earnings growth rate of 9.9%.

ResMed has a long-term earnings growth rate of 11.9%.

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Stryker Corporation (SYK) : Free Stock Analysis Report
 
Haemonetics Corporation (HAE) : Free Stock Analysis Report
 
ResMed Inc. (RMD) : Free Stock Analysis Report
 
Hill-Rom Holdings, Inc. (HRC) : Free Stock Analysis Report
 
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