Hospira Pulled Down to Underperform - Analyst Blog
12 Abril 2011 - 8:00AM
Zacks
We have downgraded Hospira Inc. (HSP) from
Neutral to Underperform following poor fourth quarter results and
issuance of lower-than-expected 2011 guidance.
Hospira’s fourth quarter 2010 earnings of 77 cents per share
were much below the Zacks Consensus Estimate of 93 cents and the
year-earlier earnings of 87 cents per share. The lackluster
earnings performance was due to Symbiq pump issues, increased
backorders in the Specialty Injectable Pharmaceuticals (SIP)
segment (resulting in supply shortages) and higher research and
development expenses. Following the poor fourth quarter
performance, management issued a lower-than-expected guidance for
2011. Adjusted earnings per share are expected to be in the range
of $3.90 to $4.00 per share. We have reduced our 2011 earnings
estimate substantially by 44 cents based on the lackluster forecast
from the company.
Hospira has put shipments of its Symbiq general infusion pump to
new customers on hold due to reports of alarm failures in certain
conditions. This significantly affected top-line growth at the
company in the second half of 2010. Hospira upgraded the software
for the product and submitted the package to the FDA for approval
in late March 2011. The timing of FDA approval is uncertain and the
pumps will be on temporary hold until then, thereby continuing to
pull down the top line. Management is also facing an issue with its
Plum A+ pump regarding an alarm failure. Though management feels
that this is not a large issue and the FDA does not require Hospira
to recall the product, it could negatively affect revenues later,
if not resolved in a timely manner. Due to issues with its Symbiq
pump, Hospira provided a depressed outlook for the Medication
Management Systems (MMS) segment. This combined with
higher-than-expected spending led to issuance of the disappointing
2011 guidance.
Another major overhang for Hospira is the pending resolution of
an FDA warning letter, which was received way back in April 2010,
because of manufacturing problems at the facilities of the company
in Clayton and Rocky Mountain, North Carolina. Hospira subsequently
submitted a response to the FDA in May 2010. Though the company has
addressed most of the issues in its response to the letter, we
believe that any slip up on the company’s part to comply with the
FDA’s quality control requirements will invite strict action from
the agency. Such an action will weigh heavily on the stock.
To conclude, the regulatory concerns and an uninspiring
performance have led us to downgrade our rating on Hospira.
HOSPIRA INC (HSP): Free Stock Analysis Report
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