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Hospira Downgraded to Strong Sell

HSP

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On January 2, Zacks Investment Research downgraded Hospira, Inc. (HSP - Analyst Report) to a Zacks #5 Rank (Strong Sell).

Why the Downgrade?

Hospira is going through a rough patch due to the ongoing manufacturing challenges at its Rocky Mountain facility as well as issues with the Symbiq/Plum pumps. The ongoing manufacturing issues at its Rocky Mountain facility have hurt the company’s earnings over the last few quarters. The issue, until resolved, will remain a major overhang on the stock.

Moreover, the warning letter received by the company from the US Food and Drug Administration (FDA) in August 2012 regarding an inspection of the company’s La Aurora de Heredia, Costa Rica device manufacturing facility is another matter of concern. The facility at Costa Rica makes most of Hospira’s infusion devices and sets (Symbiq, Plum etc.).

Moreover, the FDA’s directive, issued in November 2012, prohibiting the company from importing its Symbiq medication infusion pumps, manufactured in Costa Rica, into the US is another challenge for the company.

Manufacturing issues at the company’s other facilities, such as at Lake Forest, McPherson, Austin and IKKT are further challenges for this global specialty pharmaceutical and medication delivery company.

All the negative factors mentioned above have contributed to the downward bias in estimate revisions.  Hospira was plagued by manufacturing issues throughout 2012. Consequently, the Zacks Consensus Estimate for 2012 plummeted 34.35% on a year over year basis to $2.00 per share.

The quality control issues are expected to hurt earnings in 2013 as well. The Zacks Consensus Estimate for 2013 decreased 6.5% to $2.32 per share over the last 90 days.

Other Stocks to Consider

Not all stocks in the medical sector are performing as poorly as Hospira. The following stocks in the medical sector with favorable Zacks Rank are performing well and are worth considering.

1)    Rochester Medical Corporation carries a Zacks #1 Rank (Strong Buy)
2)    Utah Medical Products holds a Zacks #1 Rank (Strong Buy)

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