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Hill-Rom: Welch-Allyn Integration on Track, Pipeline Strong


On Sep 14, we issued an updated research report on Batesville, IN-based medical device manufacturer, Hill-Rom Holdings, Inc. HRC. The company currently carries a Zacks Rank #2 (Buy).

Post a solid third quarter of fiscal 2016, the company looks set to deliver another strong performance within the U.S. and Asia-Pacific regions. We are also hopeful about the ongoing integration of Welch Allyn, along with continued operational execution.

We note that Hill-Rom has set its long-term financial goals (through fiscal 2018) taking the Welch Allyn buyout into consideration. The company projects revenue increase from its organic activities in the range of 3%–5% annually at constant exchange rate with adjusted operating margin expansion likely to be 450–550 basis points (including the benefits from the Welch Allyn acquisition).

Adjusted earnings per share (EPS) are expected in the mid-to-high teens for 2016 compared with the 2015 EPS figure. As of the end of its third quarter, Hill-Rom was ahead of schedule with respect to the Welch Allyn integration as well as the attainment of at least $40 million in synergy by 2018.

Hill-Rom’s innovation and product development continue to remain robust. The company’s recent innovations include Integrated Table Motion; LikoGuard – a new overhead patient lift system; Compella – a new bariatric bed frame; VisiVest – a connected vest system; and several new products in its Welch Allyn portfolio. Management expects these new product introductions to rapidly accelerate the company’s revenue and margin growth.

On the flip side, unfavorable currency movement continues to be a dampener and the company does not expect any improvement any time soon. Hill-Rom currently expects foreign exchange to impact its full-year 2016 revenue outlook by approximately 2%, compared with the earlier guidance of 2–3%. In the ongoing fiscal fourth quarter too, currency is expected to hinder Hill-Rom’s revenue growth by 1%.

Moreover, the company witnessed top-line deterioration in most of its international businesses, on account of persistent weakness in the Middle East. In addition, competitive and global economic headwinds are other downsides.

Key Picks in the Sector

Other well-ranked medical stocks are Baxter International Inc. BAX, GW Pharmaceuticals plc GWPH and Lantheus Holdings, Inc. LNTH. All the three stocks sport a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

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