Hanger Orthopedic Downgraded

We have downgraded shares of Hanger Orthopedic Group, Inc. (HGR - Analyst Report) to a Hold.  Hanger Ortho is the market leader in the orthotic and prosthetic (O&P) patient care services market, operating in 46 states in the U.S. and the District of Columbia through 636 patient care centers. HGR's economies of scale are unmatched by other competitors.

We expect the O&P industry to slow through the coming 12 months as economic uncertainty delays patient decision-making. Also, we feel patient decisions for new and replacement O&P products will be delayed as unemployment rises, leading to slower sales and earnings growth. Prior economic slow downs provide evidence of this trend.

In the current economic environment, we believe the stock possesses higher-risk and offers lower returns from these levels. Since changing our recommendation to a BUY in April 2008, the stock has gained 30%. We believe HGR should trade at a 25% premium to the comparable average of 1.0x P/E/G. Our target moves to $15.38, or roughly 18.75x our expected 2008 EPS of $0.82.

Read the analyst note on HGR