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Hill-Rom Banks on Product Innovation, Strategic Buyouts

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On Apr 5, we issued an updated research report on Hill-Rom Holdings, Inc. (HRC - Free Report) . Post the completion of its $2.05 billion acquisition of Welch Allyn, the company now boasts a significantly larger global reach with operations across 30 countries worldwide. The stock carries a Zacks Rank #3 (Hold).

Shares of Hill-Rom have outperformed the broader industry in the past year. The stock has gained 22.6% compared with the industry's 13.6% rally.

Hill-Rom exited the first quarter of fiscal 2018 on a strong note with better-than-expected earnings and revenues. The company saw a solid year-over-year increase in the top line on sturdy international growth, primarily banking on the One Hill-Rom approach.

 

The company is focusing on product innovation, the latest launch being Connex Cardio ECG. It has updated its 2020 long-range financial objectives and outlook considering gains from the new tax reform. The company now expects adjusted earnings growth of 12-14% on a compound annual basis through 2020, higher than the previous guidance of 10-12%.

Moreover, an improvement in gross and adjusted operating margin buoys optimism. Further, per management, Hill-Rom expects the latest U.S. tax regulations to positively impact its adjusted effective tax rate and earnings, starting from the first quarter of fiscal 2018.

Hill-Rom's merger and acquisition activities are also showing great results. The company actively pursues buyouts to accelerate growth in five key clinical areas viz. patient mobility, wound care and prevention, surgical, safety and efficiency, clinical workflow solutions as well as respiratory help. Apart from Welch Allyn and Trumpf, the recent noteworthy transactions include integrations of Virtus, Aspen Surgical and Mortara Instrument among others.

On the flip side, drooping revenues at the company’s Patient Support Systems segment is quite disappointing. Hill-Rom operates in a highly competitive space, dominated by large and small as well as regional manufacturers. Also, an unfavorable currency movement continues to be a menace to the company since a large chunk of its revenues is generated from international operations.

Key Picks

A few better-ranked stocks in the broader medical sector are Bio-Rad Laboratories (BIO - Free Report) , athenahealth, Inc. (ATHN - Free Report) and Centene Corporation (CNC - Free Report) .

Bio-Rad Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company’s long-term expected earnings growth rate is pegged at 20%.

athenahealth is a Zacks #1 Ranked player. It has an expected long-term earnings growth rate of 21.5%.

Centene has an expected long-term growth rate of 14.4% and carries a Zacks Rank #2 (Buy).

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