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Here's Why You Should Hold on to Hill-Rom (HRC) Stock for Now

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Hill-Rom Holdings, Inc. (HRC - Free Report) has been gaining on robust domestic growth, boosted by strength in majority of segments and geographies. Its impressive results in second-quarter fiscal 2020 buoy optimism. However, macroeconomic headwinds and a tough competitive landscape are concerning.

Over the past year, the Zacks Rank #3 (Hold) stock has lost 7.7% versus the industry’s 5.3% fall and the S&P 500’s 6.1% rise.

The renowned global medical device provider has a market capitalization of $6.46 billion. The company projects 15.6% growth for the next five years and expects to maintain its strong performance. The company surpassed estimates in all of the trailing four quarters, the average positive surprise being 5.3%.


 

Let’s delve deeper.

Robust Demand Amid Pandemic: We are upbeat about Hill-Rom’s solid increase in revenues from robust demand for its ICU beds and thermometry globally. The company’s Patient Support Systems segment revenues and core growth were robust, primarily driven by majority of the early COVID-19-related demand.

Measures to Combat Coronavirus: Hill-Rom received emergency use authorization from the FDA to enhance its MetaNeb System for respiratory support. It also added a feature to the Connex Vital Signs Monitor and included a remote monitoring platform to simplify connectivity to the recently-launched Welch Allyn Spot 4400 Vital Signs Monitor. Further, it launched a remote mobile software solution, Voalte Extend, to respond to customers' emergent needs as well as ramped up production of the Life2000 non-invasive ventilator. It also partnered with AgileMD to offer a digital COVID-19 solution.

Strong Q2 Results: Hill-Rom’s better-than-expected second-quarter fiscal 2020 results buoy optimism. Solid year-over-year increase in revenues on robust domestic growth, boosted by sturdy performance in majority of segments and geographies is impressive. The pandemic-led surge in demand for the company’s products like ICU beds and thermometry is encouraging. Expansion of both margins buoys optimism as well.

Downsides:

Macroeconomic Headwinds:
As Hill-Rom’s business depends heavily on general domestic and global economic conditions, economic turmoil is a concern for the company. The credit and capital markets have experienced extreme volatility and disruption over the past several years. This has led to phases of recessionary conditions and depressed levels of consumer and commercial spending, causing customers to reduce or delay plans of purchasing Hill-Rom’s products and services. This leads to a slowdown in the company’s growth rate in the market.

Stiff Competition: Hill-Rom competes with a large number of players. It evaluates its competition based on its product categories rather than business segments. Additionally, the market consists of a large number of smaller and regional manufacturers.

Estimate Trend

Hill-Rom has been witnessing a positive estimate revision trend for 2020. Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 2.3% north to $5.45.

The Zacks Consensus Estimate for its third-quarter fiscal 2020 revenues is pegged at $738.2 million, suggesting 1.6% growth from the year-ago number.

Key Picks

Some better-ranked stocks from the broader medical space are Quest Diagnostics Incorporated (DGX - Free Report) , Hologic, Inc. (HOLX - Free Report) and QIAGEN N.V. (QGEN - Free Report) .

Quest Diagnostics’ long-term earnings growth rate is projected at 7.6%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic’s long-term earnings growth rate is estimated at 7%. The company presently has a Zacks Rank #2.

QIAGEN’s long-term earnings growth rate is estimated at 12.2%. It currently sports a Zacks Rank #1.

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