We reaffirm our Neutral rating on orthotic and prosthetic
(O&P) company
Hanger Orthopedic
(
HGR
) following its mixed third quarter results. Adjusted earningsof 46
cents per share for t he quarter beat the Zacks Consensus Estimate
by a penny. Profit more than doubled year over year on the back of
higher sales and lower relocation charges.
Revenues climbed roughly 14% year over year to $235.3 million,
yet missed the Zacks Consensus Estimate. Revenues were boosted by
higher sales from Hanger's therapeutic so lutions division, aided
by the Accelerated Care Plus ("ACP") acquisition. Higher same
center sales in the Patient Care Services division also contributed
to the growth.
Hanger witnessed greater pressure on sales volumes and operating
margin in the quarter. The company chopped its revenues and
earnings forecasts for fiscal 2011 given the prevailing difficult
operating backdrop.
Hanger leads in the O&P patient care services market,
operating across more than 680 patient care centers in the U.S. The
company's economies of scale are unmatched by competition, which
include notable players in the O&P space such as
Orthofix International
(
OFIX
),
Conmed Corp.
(
CNMD
),
Exactech Inc.
(
EXAC
) and
Owens & Minor Inc.
(
OMI
).
Hanger is enjoying healthy demand for its services. Linkia, the
company's network management wing, continues to expand its
relationship with national and regional insurance companies.
Hanger continues to explore acquisitions to boost its geographic
presence. Moreover, the company is poised to achieve meaningful
cost synergies from its corporate relocation.
Another significant growth catalyst represents broader
reimbursement coverage for its electrical stimulation device
WalkAide. Hanger is currently conducting a clinical study to secure
this benefit (expected in 2012).
We remain impressed by Hanger's ability to post top line
improvement at a healthy quarterly run rate. However, we are
cautious about the company's exposure to reimbursement
uncertainties and its aggressive acquisition strategy which has
inherent risks.
Moreover, Hanger has lowered its guidance for fiscal 2011 and
provided a tepid outlook for the fourth quarter citing a host of
macro issues which impacted its volume and margins in the most
recent quarter. These factors, among others, are a soft U.S.
economy, high unemployment, uncertainties surrounding the health
care reform and measures (including reimbursement cuts) adopted by
the state governments to cover budget deficits.
Hanger currently retains a Zacks #4 Rank, which translates into
a short-term "Sell" recommendation.
CONMED CORP (
CNMD
): Free Stock Analysis Report
EXACTECH INC (
EXAC
): Free Stock Analysis Report
HANGER ORTHOPED (
HGR
): Free Stock Analysis Report
ORTHOFIX INTL (
OFIX
): Free Stock Analysis Report
OWENS & MINOR (
OMI
): Free Stock Analysis Report
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