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Hill-Rom (HRC) Hits a New 52-Week High: What's Driving It?

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Hill-Rom Holdings (HRC - Free Report) scaled a new 52-week high of $147.70 on Aug 30, before closing the session marginally lower at $145.78. The stock has rallied 5.3% since its fiscal third-quarter earnings announcement on Jul 30.

The company is witnessing an upward trend in its stock price, prompted by growth in its Front Line Care and Surgical Solutions arms in third-quarter fiscal 2021. The company’s recent launches, including the Helion Integrated Surgical System for the U.S. market, buoy optimism. Its raised financial guidance for 2021 is encouraging as well. However, foreign exchange headwinds and stiff competition remain concerns.

Lets’ delve deeper.

Factors at Play

Impressive Q3 Results: Hill-Rom exited third-quarter fiscal 2021 with better-than-expected earnings and revenues. Excluding the COVID-19 headwind, revenues advanced 10% at CER, fueled by stronger-than-expected performance across the vast majority of the company’s portfolio. The year-over-year growth in Front Line Care (led by accelerated recovery in key Welch Allyn products) and Surgical Solutions (led by growth in demand for operating room tables) segments contributed to top-line growth.

Acquisitions to Add Value: Hill-Rom’s merger and acquisition (M&A) pipeline continues to be robust. With improved balance sheet flexibility, the company is in a strong position to enhance category leadership and further its growth objectives. Hill-Rom is active in evaluating additional tuck-in opportunities that are aligned with its connected care vision, enhance business and improve outcomes for patients and caregivers. The company aggressively pursues acquisitions to accelerate growth in five key clinical focus areas viz. advancing patient mobility, wound care and prevention, surgical, safety and efficiency, clinical workflow solutions and respiratory help.

In February 2021, Hill-Rom announced acquisition of contact-free continuous monitoring technology from EarlySense, partnered with Augmedics, creator of the groundbreaking xvision Spine System (XVS), the first augmented reality navigation system to be used in surgery. In January 2021, Hill-Rom reached a definitive agreement to acquire Bardy Diagnostics, an innovator in digital health and a leading provider of ambulatory cardiac monitoring technologies.

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Upbeat Guidance: For fiscal 2021, the company expects revenue growth in the range of 3% to 4% on a reported basis. This is an improvement from the April-announced guidance of 1% to 3% growth.

Adjusted earnings per share are now projected in the range of $6.08-$6.12 (an increase from the earlier guidance of $6.00-$6.10). The company also provided guidance for the fourth quarter of fiscal 2021. Hill-Rom expects revenues to improve 6-7% on a reported basis and adjusted earnings, excluding special items, of $1.44 to $1.48 per share.

Downsides

Foreign Exchange Headwind to Continue: Hill-Rom generates a large part of its revenues from outside the United States. According to the company, it is exposed to currency fluctuation.

Tough Competitive Landscape: The presence of a large number of players has made the medical devices market intensely competitive. Hill-Rom evaluates its competition based on its product categories, rather than business segments. In Patient Support Systems, the company competes with ArjoHuntleigh (Division of Getinge AB), Universal Hospital Services, Inc. and Stryker Corporation, among others. In Front Line Care, some of the major players are GE Healthcare, Philips and ResMed. In Surgical Solutions, DeRoyal, Draegar and Skytron are a few of the other competitors. Additionally, the market consists of a large number of smaller and regional manufacturers.

Zacks Rank and Key Picks

Currently, Hill-Rom carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST - Free Report) , BellRing Brands, Inc. (BRBR - Free Report) and Henry Schein, Inc. (HSIC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has an estimated long-term earnings growth rate of 27%.

BellRing Brands has an estimated long-term earnings growth rate of 29%.

Henry Schein has a projected long-term earnings growth rate of 14%.