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We retain our Outperform recommendation on Hospira, Inc. (HSP - Analyst Report) following the higher-than-expected earnings reported by the company in the second quarter of 2013. The positive surprise delivered by this Zacks Rank #2 (Buy) company was its fourth consecutive earnings beat. The average beat is 8.08%. The long-term expected earnings growth rate for this stock is 7.94%.

Why the Reiteration?

On Jul 31, 2013, Hospira reported second quarter 2013 adjusted earnings of $0.55 per share, surpassing the Zacks Consensus Estimate and the year-ago earnings of $0.51. Results during the quarter were aided by lower costs.

The Specialty Injectable Pharmaceuticals segment, the biggest contributor to Hospira’s top line, performed well in the second quarter of 2013 with segmental sales climbing 7.1% (up 7.4% at constant currency) to $689.8 million. Drugs such as Precedex (a sedative) performed well during the quarter. A factor favoring the segment is the promising pipeline, which contains many injectables going off-patent in the next few years. Continued strong performance of the segment will boost Hospira’s top line.

We are also encouraged by the positive opinion issued by the European Medicines Agency’s Committee for Medicinal Products for Human Use regarding the approval of Inflectra (infliximab). Inflectra is the biosimilar version of Johnson & Johnson / Merck & Co. Inc.’s (JNJ - Analyst Report)/(MRK - Analyst Report) Remicade. The biosimilars market represents huge commercial opportunity with a significant amount of biologic sales slated to lose patent protection in the coming years.

We are also impressed by Hospira’s efforts to resolve the manufacturing issues confronting it.  We still believe that the stock is undervalued at current levels with significant scope for appreciation.

Another Stock Worth Considering

Apart from Hospira, Alere Inc. (ALR - Snapshot Report) is another favorably placed stock in the medical sector. Alere, carrying a Zacks Rank #1 (Strong Buy), is worth considering.

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