Hill-Rom: Welch-Allyn Synergy Continues, Currency Woes Stay

On Jul 11, we issued an updated research report on Batesville, IN-based medical device manufacturer Hill-Rom Holdings, Inc. (NYSE:HRC) . The company currently carries a Zacks Rank #3 (Hold).

Hill Rom is reaping significant benefits from the Welch Allyn acquisition as is already evident from this business’ contribution to revenues as well as gross margin in its reported in second quarter of 2016.

We have noted that, Hill-Rom has set its long-term financial goals (till 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) CAGR is expected in the mid-to-high teens compared with the 2015 EPS figure

Apart from Welch Allyn and Trumpf, several of the company’s recent noteworthy acquisitions include Virtus, Aspen, Surgical and Völker. Each of these dealings has been driving growth for the company.

During the fiscal second quarter, on account of the Welch Allyn buyout, Hill-Rom launched Connex Spot Monitor in the U.S., which is already witnessing strong traction in the domestic market. The company is also rolling out a new product, RetinaVue, which is expected to enhance growth.

On the flip side, unfavorable currency movement continues to be a dampener and the company does not expect any improvement soon. Hill-Rom also expects foreign exchange to impact its full-year 2016 revenue outlook by approximately 2%–3%.

Moreover, the company witnessed top-line deterioration in most of its overseas businesses, except Asia-Pacific, on account of its continual weakness in the Middle East and Latin America. In addition, competitive and global economic headwinds are the other downsides.

Key Picks in the Sector

Some better-ranked medical stocks are Enzymotec Ltd. (NASDAQ:ENZY) , Boston Scientific Corporation (NYSE:BSX) and St. Jude Medical Inc. (NYSE:STJ) . All the three stocks carry a Zacks Rank #2 (Buy).