We reiterate our Neutral recommendation on
) following its second quarter results which surpassed the Zacks
The company's adjusted earnings of 50 cents per share exceeded
the year-ago earnings of 45 cents per share. Revenues rose 7.2%
year over year to $251.8 million in the quarter. Profits improved
12.7% to $17.4 million, helped by higher sales and cost control
Hanger reiterated its revenue guidance for 2012 despite
reimbursement and regulatory headwinds. On the earnings front, the
company raised the lower end of its guidance and now expects
adjusted earnings per share in the range of $1.75 to $1.79 (earlier
$1.72 to $1.79) for 2012. Hence, there exists a scope for multiple
Headquartered in Austin, Texas, Hanger is the market leader in
the O&P market. Its wide portfolio serves a $4.6 billion market
where the traditional O&P market is worth $2.6 billion. Other
notable players in the O&P space are
). Being the leading player, the company has economies of scale
unmatched by its competitors.
Hanger continues to expand its revenues on a quarterly basis,
supported by healthy contributions from the company's patient care
and distribution segment and acquisitions. We expect this uptrend
to continue in the future reporting periods, backed by multiple
growth drivers. Internal growth drivers such the company's
subsidiary, Linkia accompanied with external factors favor
accelerated growth in the years ahead.
The company continues to explore acquisitions to boost its
geographic footprint and revenues. Hanger's acquisitions are
specific to location, quality of practitioners, and product/service
mix. Given the scale of administrative and regulatory headaches
smaller practitioners face, they often approach Hanger requesting
it to explore options for their purchase.
The industry in which Hanger operates is highly disintegrated.
As a result, the company faces intense and fragmented competition
despite its overweighing market position. This includes both
pricing and referral competition. We are also wary about the
reimbursement uncertainties and the macroeconomic issues. Despite
our concerns, the stock has significant upside potential.
Hanger currently carries a short-term Zacks #2 Rank (Buy).
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