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Here's Why You Should Hold on to Hill-Rom (HRC) for Now
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Hill-Rom Holdings, Inc. is gaining from strategic acquisitions. The acquisition of contact-free continuous monitoring technology from EarlySense to strengthen its position in the digital health industry appears promising. A good solvency position is an added advantage. However, escalating costs and stiff competition do not bode well for the stock.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 65.5% versus 3.7% growth of the industry and a 32.6% rise of the S&P 500.
The renowned global medical device company has a market capitalization of $9.92 billion. Its earnings for the third quarter of fiscal 2021 surpassed the Zacks Consensus Estimate by 2.9%.
Over the past five years, the company’s earnings grew 15%, way ahead of the industry’s 6.2% rise and the S&P 500’s 2.8% increase. The company’s expected growth rate of 4.9% for the next year compares to the industry’s growth expectation of 19.3%.
Image Source: Zacks Investment Research
Let’s delve deeper.
Factors At Play
Strategic Acquisitions: We are upbeat about Hill-Rom’s recent acquisitions, which are expected to drive 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, the company announced the acquisition of contact-free continuous monitoring technology from EarlySense.The company also reached a definitive agreement to acquire Bardy Diagnostics in January 2021. Notably, Bardy's differentiated diagnostic cardiology platform is complementary and further strengthens the company’s existing cardiology portfolio and connected care vision. Hill-Rom’s acquisitions are expected to contribute approximately $80 million in annual revenue and collectively generate more than 30% organic growth in fiscal 2021.
Progress in Digital Health Space: Hill-Rom’s continued innovation and notable buyouts in the digital heal space raise optimism. The company’s smartphone application LINQ mobile is currently available in the United States and Canada. Per the company, the platform has integrated Clinical Workflows with Nurse Call and clinical surveillance with monitoring systems to enhance care team communication and efficiency. To fortify its ground in the digital health space, the company also acquired the contact-free continuous monitoring technology from EarlySense in February. Hill-Rom’s Voalte Extend and Connex Vital Signs Monitor are also a few notable product launches in the digital health space.
Strong Solvency: Hill-Rom exited third-quarter fiscal 2021 with cash and cash equivalents of $273 million. The quarter’s total debt of $1.72 billion was much higher than the corresponding cash and cash equivalent. However, the company has a short-term-payable debt of $238 million, which is slightly lower than the current cash in hand. This is good news in terms of the company's solvency position, implying that, at least during the year of economic downturn, it has sufficient cash for short-term debt repayment.
Downsides
Escalating Costs: Mounting costs and expenses are dragging down Hill-Rom’s margins. In the fiscal third quarter, gross margin contracted 111 basis points (bps) to 52.2% on a 4.5% rise in cost of net revenues. Meanwhile, selling, general and administrative expenses rose 6.7%, while research and development expenses increased 5.5%. Adjusted operating margin contracted 541 bps year over year to 17%.
Foreign Exchange Headwind: Hill-Rom is susceptible to currency fluctuations as it generates a large part of its revenues from outside the United States. Unfavorable currency movements were major dampeners during the fiscal second quarter and the company does not expect any improvement in this scenario any time soon.
Tough Competitive Landscape: 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). In Front Line Care, the company faces significant competition from ResMed Inc. (RMD - Free Report) and other notable MedTech players. In Surgical Solutions, DeRoyal, Draegar and Skytron are some of the other competitors.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Hill-Rom’s earnings has moved 0.8% north to $6.11.
The Zacks Consensus Estimate for fiscal fourth-quarter 2021 revenues is pegged at $753.35 million, suggesting a 6.81% rise from the year-ago reported number.
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Here's Why You Should Hold on to Hill-Rom (HRC) for Now
Hill-Rom Holdings, Inc. is gaining from strategic acquisitions. The acquisition of contact-free continuous monitoring technology from EarlySense to strengthen its position in the digital health industry appears promising. A good solvency position is an added advantage. However, escalating costs and stiff competition do not bode well for the stock.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 65.5% versus 3.7% growth of the industry and a 32.6% rise of the S&P 500.
The renowned global medical device company has a market capitalization of $9.92 billion. Its earnings for the third quarter of fiscal 2021 surpassed the Zacks Consensus Estimate by 2.9%.
Over the past five years, the company’s earnings grew 15%, way ahead of the industry’s 6.2% rise and the S&P 500’s 2.8% increase. The company’s expected growth rate of 4.9% for the next year compares to the industry’s growth expectation of 19.3%.
Image Source: Zacks Investment Research
Let’s delve deeper.
Factors At Play
Strategic Acquisitions: We are upbeat about Hill-Rom’s recent acquisitions, which are expected to drive 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, the company announced the acquisition of contact-free continuous monitoring technology from EarlySense.The company also reached a definitive agreement to acquire Bardy Diagnostics in January 2021. Notably, Bardy's differentiated diagnostic cardiology platform is complementary and further strengthens the company’s existing cardiology portfolio and connected care vision. Hill-Rom’s acquisitions are expected to contribute approximately $80 million in annual revenue and collectively generate more than 30% organic growth in fiscal 2021.
Progress in Digital Health Space: Hill-Rom’s continued innovation and notable buyouts in the digital heal space raise optimism. The company’s smartphone application LINQ mobile is currently available in the United States and Canada. Per the company, the platform has integrated Clinical Workflows with Nurse Call and clinical surveillance with monitoring systems to enhance care team communication and efficiency. To fortify its ground in the digital health space, the company also acquired the contact-free continuous monitoring technology from EarlySense in February. Hill-Rom’s Voalte Extend and Connex Vital Signs Monitor are also a few notable product launches in the digital health space.
Strong Solvency: Hill-Rom exited third-quarter fiscal 2021 with cash and cash equivalents of $273 million. The quarter’s total debt of $1.72 billion was much higher than the corresponding cash and cash equivalent. However, the company has a short-term-payable debt of $238 million, which is slightly lower than the current cash in hand. This is good news in terms of the company's solvency position, implying that, at least during the year of economic downturn, it has sufficient cash for short-term debt repayment.
Downsides
Escalating Costs: Mounting costs and expenses are dragging down Hill-Rom’s margins. In the fiscal third quarter, gross margin contracted 111 basis points (bps) to 52.2% on a 4.5% rise in cost of net revenues. Meanwhile, selling, general and administrative expenses rose 6.7%, while research and development expenses increased 5.5%. Adjusted operating margin contracted 541 bps year over year to 17%.
Foreign Exchange Headwind: Hill-Rom is susceptible to currency fluctuations as it generates a large part of its revenues from outside the United States. Unfavorable currency movements were major dampeners during the fiscal second quarter and the company does not expect any improvement in this scenario any time soon.
Tough Competitive Landscape: 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). In Front Line Care, the company faces significant competition from ResMed Inc. (RMD - Free Report) and other notable MedTech players. In Surgical Solutions, DeRoyal, Draegar and Skytron are some of the other competitors.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Hill-Rom’s earnings has moved 0.8% north to $6.11.
The Zacks Consensus Estimate for fiscal fourth-quarter 2021 revenues is pegged at $753.35 million, suggesting a 6.81% rise from the year-ago reported number.
Key Picks
Two better-ranked stocks from the Medical-Products industry include National Vision Holdings, Inc. (EYE - Free Report) and BellRing Brands, Inc. (BRBR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
National Vision has a long-term earnings growth rate of 23%.
BellRing Brands has a long-term earnings growth rate of 29.1%.