We are maintaining our Neutral recommendation on
) with a target price of $34.00. The stock carries a Zacks #3 Rank
(Hold rating) in the short run.
Hospira performed disappointingly in the second quarter of 2012.
While earnings fell short of the year-ago figure by 45.7%, revenues
were 2.9% lower than the year-ago figure. Adverse foreign currency
movements and the slowdown in production at the company's facility
in Rocky Mountain, North Carolina hurt results during the
Hospira is facing continued manufacturing problems at its Rocky
Mountain facility, which accounts for approximately 25% of overall
net sales. Rocky Mountain is currently operating at 60%-70% of the
normal level. The company is working hard to resolve the issue.
Moreover, in August 2012, Hospira received another warning
letter from the US Food and Drug Administration (FDA) following the
inspection of the company's La Aurora de Heredia, Costa Rica device
manufacturing facility in April 2012. The facility at Costa Rica
makes most of Hospira's infusion devices and sets (Symbiq, Plum
etc.). The FDA stated that the company's response (in May 2012) to
the inspection in April 2012 was unsatisfactory. The agency further
stated that Hospira's manufacturing facility at Costa Rica was
flouting the rules laid down by the FDA. We believe Hospira's top
and bottom-lines will rebound once the ongoing manufacturing issues
The Specialty Injectable Pharmaceuticals (SIP) segment is the
biggest contributor to Hospira's top line. Although second quarter
2012 SIP sales declined 4.6% (down 1.7% at constant currency) to
$644.2 million from the year-ago period, we note that
year-over-year comparisons were tough as Hospira's generic version
) Taxotere was approved in the US in March 2011. The August 2012
re-launch of Hospira's generic version of Sanofi's cancer drug,
Eloxatin, should strengthen the SIP unit, which should perform well
going forward. Another factor favoring the segment is the promising
pipeline, which contains many injectables going off-patent in the
next few years.
HOSPIRA INC (HSP): Free Stock Analysis Report
SANOFI-AVENTIS (SNY): Free Stock Analysis
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