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Hill-Rom Sets New Growth Targets Post Welch Allyn Buyout

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Hill-Rom Holdings, Inc.HRC , which has recently acquired New York-based privately-held medical diagnostic equipment maker - Welch Allyn - for $2.05 billion, provided an outline of the long-term growth strategies of the combined company along with key initiatives to be undertaken. The company also stated its financial goals through fiscal 2018 as well as updated its guidance for 2015.

Strategies and Initiatives

The combined company primarily plans to focus on revenue, margin and earnings expansion. Hill-Rom believes that these targets can be achieved through alliances with health care customers, business partners and other key constituencies based on global sales channel and service capabilities.

Apart from investment in Research and Development for differentiated product launch, improvement in sales and marketing initiatives is also on the cards. Moreover, the company targets optimization of its manufacturing footprint, acceleration of product rationalization, and reduction of supply chain costs along with diversification of product portfolio with strong capital allocation.

Long-Term Goals

Based on the aforesaid initiatives, Hill-Rom has set its long-term financial goals (till fiscal 2018). The company projects revenue increase from its organic activities in the range of 3-5% annually at constant exchange rate or CER with adjusted operating margin expansion in the range of 450-550 basis points (including the accretive benefit of the Welch Allyn acquisition). Adjusted earnings per share (EPS) CAGR is expected in the mid-to-high teens compared with 2015 EPS projection. Cumulative operating cash flow is expected to be more than $1 billion.

Changed Outlook for 2015

For fiscal 2015, Hill-Rom expects revenues to range between $1.96 and $1.97 billion with fourth-quarter revenues in the range of $545-$555 million. Full-year adjusted EPS is likely to be within the $2.55-$2.57 range, up from earlier provided guidance of $2.51-$2.54. Fourth-quarter adjusted EPS has been raised to the range of 80-82 cents, from 76-79 cents declared previously.

Operating cash flow and capital expenditure projections for 2015 remain at $235 million and 125 million, respectively.

Conclusion

The newly formed entity will have a larger global reach with operations in 30 countries worldwide. The combined company will offer a broader range of patient-centric advanced solutions for a global customer base and also gain competitive edge in the diagnostic testing space. Additionally, the transaction will enable Hill-Rom to expand its channel access and call points as well as enhance clinical workflow through EMR connectivity solutions.

The extended platform will allow the combined entity to generate stable recurring cash flow with less than one third of its revenues coming from large acute care capital equipments. The significantly enhanced financial position and resources of the combined company will aid further investment in Research and Development. Moreover, it will support the company's pursuit of more suitable merger and acquisition opportunities, thereby enhancing shareholder value to a considerable extent.

Hill-Rom currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the medical product sector are NuVasive, Inc. NUVA , ICU Medical, Inc. ICUI and OraSure Technologies, Inc. OSUR . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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ORASURE TECH (OSUR): Free Stock Analysis Report

NUVASIVE INC (NUVA): Free Stock Analysis Report

HILL-ROM HLDGS (HRC): Free Stock Analysis Report

ICU MEDICAL INC (ICUI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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