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Hill-Rom Rides High on Solid Prospects, Asia-Pacific a Drag


On Jun 11, we issued an updated research report on Batesville, IN-based Hill-Rom Holdings, Inc. HRC – a leading global medical device company. The company currently has a Zacks Rank #2 (Buy).

For the last three months, Hill-Rom has been trading above the Zacks categorized Medical – Products industry. The stock has till now gained 13.5%, compared to the industry's gain of 6.1%. Management’s promising guidance for 2017 also raises optimism.

The company is currently looking to gain traction in the global market banking on its efficient international team and organizational realignment. Notably, the company demonstrated balanced growth across all three segments in its last reported fiscal second quarter. Geographically, over the recent past, Hill-Rom consistently posted strong growth in the U.S. and also delivered a solid gross margin.

Hill-Rom has impressive long-term growth strategies. The company stated its financial goals through fiscal 2018 which management believes can be achieved through alliances with health care providers, acquisitions and product development. Management projects revenue increase from organic activities in the range of 3–5% annually and adjusted operating margin expansion in the range of 450–550 basis points.

Hill-Rom’s buyout pipeline continues to be strong. The company aggressively pursues acquisitions to accelerate growth in five key clinical areas – patient mobility, wound care and prevention, surgical, safety and efficiency, clinical workflow solutions and respiratory help. Apart from Welch Allyn and Trumpf, a few recent noteworthy acquisitions include Virtus, Aspen, Surgical and Völker. Each of these transactions plays an important role in the company’s growth story. Recently, management completed the acquisition of Mortara Instrument which is expected to generate approximately $10 million in annualized cost synergies over the next two years.

For quite some time now, management has been focusing on product diversification which is reflected in the company’s rising research and development (R&D) spending. The company recently launched two surgical beds under its Surgical Solutions portfolio.

Hill-Rom is also optimistic about the initial adoption of products such as Connex, Spot Monitor, Spot Vision Screener, RetinaVue and Integrated Table Motion. Management is upbeat about Welch Allyn RetinaVue Imager, a latest handheld technology for primary care settings, which has been driving profits for Hill-Rom since its launch in 2016. Management expects R&D spending margin to remain at approximately 5% in fiscal 2017.

On the flip side, Hill-Rom has been facing adverse macroeconomic conditions in the Asia-Pacific region of late. Also, with more than 30% of its sales coming from overseas, Hill-Rom faces considerable risk from adverse currency fluctuations. The highly competitive market is also a concern.

Other Key Picks

Some other top-ranked stocks in the medical sector are Align Technology, Inc. ALGN, Inogen, Inc. INGN and Accelerate Diagnostics, Inc. AXDX. Notably, Align Technology and Inogen sport a Zacks Rank #1 (Strong Buy), while Accelerate Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock added roughly 30.9% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has a solid one-year return of around 88%.

Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock added roughly 20% over the last three months.

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