Balanced View on Hanger - Analyst Blog

On Mar 26, we have updated our research report on Hanger Inc. HGR.  We are impressed with the company's higher revenues and EPS guidance riding on improvements in Patient Care segment. However, outlook for the Products & Services unit continues to be soft.

Hanger posted flat adjusted earnings per share of 54 cents for the fourth quarter of 2013 compared with the same quarter of 2012 but beat the Zacks Consensus Estimate by a penny. Net adjusted earnings inched up 1.1% to $19.0 million from $18.8 million in the fourth quarter of 2012.

Revenues in the quarter increased 3.2% year over year to $278.2 million but lagged the Zacks Consensus Estimate of $284 million. The increase was mainly driven by growth in the Patient Care segment, partially offset by soft sales in the Products and Services segment.

The increase ($11.1 million or about 5%) in Patient Care segment revenues comprised of a $2.8 million, or 1.3%, rise in same center sales, with the remaining $8.3 million growth driven by acquisitions.

Hanger anticipates revenues in the range of $1,110 to $1,130 million, indicating a 6 to 8% rise from the prior year driven by a 3 to 5% growth in same center sales in Patient Care segment, and a marginal decline in Products & Services segment revenues.

Hanger also expects adjusted earnings per share to grow 8 to 13% to $2.10–$2.20, excluding $0.05 of impact for training and implementation costs of Janus.

Hanger is the market leader in the O&P market. It accounts for roughly 19% of the estimated $4.3 billion spent every year in the U.S. on O&P products and services. Being the leading player, the company has economies of scale unmatched by its competitors.

However, Hanger continues to be affected by affected by a host of macroeconomic issues including sequestration, RAC audits, uncertainties surrounding the health care reform and other measures adopted by the state governments.

Currently, Hanger retains a Zacks Rank #5 (Strong Sell).

Other Stocks to Pick

Some better-ranked stocks in the medical instruments sector that are currently worth a look include Enzymotec Ltd. ENZY, Meridian Bioscience, Inc. VIVO, and St. Jude Medical Inc. STJ. Enzymotec carries a Zacks Rank #1 (Strong Buy), while both Meridian Bioscience and St. Jude Medical hold a Zacks Rank #2 (Buy).