Neena Mishra

Bear of the Day: Hospira (HSP)

by

March 25, 2013 |
HSP

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Hospira has been facing some serious manufacturing quality concerns related its injectable drugs as well as infusion pump systems. Its remediation efforts may be successful in the long-run but they will hurt the bottom line in the short-run.

Further, the time frame for remediation remains uncertain and the company may continue to lose its market share during this time.

In view of the cloudy outlook, investors should avoid this Zacks Rank # 5 (Strong Sell) stock for the time being.

About the Company

Headquartered in Lake Forest, IL, Hospira is the world's leading provider of injectable drugs and infusion technologies. Hospira was spun off from Abbott Laboratories in 2004.

Quality Control Issues

In the last 2-3 years, the company has received several notices from the US Food and Drug Administration (FDA) regarding quality control issues at its Rocky Mountain facility and other facilities. The remediation efforts are likely to be costly and time consuming. Further, manufacturing will likely remain constrained during the remediation period.

Lackluster Fourth Quarter Results

For the fourth quarter of 2012, Hospira reported earnings of  $0.55 per share, a penny above Zacks consensus estimate. Full-year 2012  earnings  were  $2.01 per share,  34% below prior year earnings. 

2013 Guidance Withdrawn

On February 14, 2012, Hospira disclosed in a regulatory filing that it is withdrawing its 2013 financial guidance communicated during the earnings call, based on the notification received from the US Food and Drug Administration regarding import ban on infusion pump systems from its manufacturing facility in Costa Rica.

Hospira expects the expansion of the import ban to adversely impact its 2013 net sales by $50 to $100 million, in case the ban stays throughout 2013.

Downwards Revisions

In the last 60 days, 3 analysts have revised their quarterly estimates downwards and 8 analysts have revised the estimates for the full-year downwards. 

The Bottom Line

The company has been making efforts to recapture its lost market share, improve its manufacturing quality as well as expand its presence in emerging markets. It is also trying to leverage on its leadership position in some of the products. While these efforts may be successful in the longer-term, the near term outlook for the company remains murky.

HSP is currently Zacks Rank # 5 (Strong Sell) stock and it also has a longer-term recommendation of “Underperform”.

Further manufacturing issues at its Rocky Mountain facility (which did not comply with the regulatory standards according to FDA) and some other facilities, and FDA’s import ban continue to pose headwinds to the stock’s recovery.

Given above reasons, we would advise the investors to stay away from this stock for the time being. Investors seeking exposure to this industry can look at some of the better peers like Conceptus (CPTS) or Nuvasive (NUVA), both of which are ranked #2 (Buy) by us. 

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