We are reverting to a Neutral recommendation on
) 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
) 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.
We note that stocks such as
) 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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