Morgan Stanley Sees Sustainability Question For Hospira As Precedex Lingers

In a report published Thursday, Morgan Stanley analyst David R. Lewis reiterated an Equal-Weight rating on Hospira HSP. In the report, Morgan Stanley noted, “The bull case requires a long horizon. Guidance implies $4.25-4.75 EPS in '18 and a mid/high teens CAGR, which could support a $60 valuation and material upside in ‘14. Our approach is more conservative for the near term as we believe HSP's forecasts assume success on less visible initiatives, including biosimilar market development and India-based production. For '14 there are no material catalysts to inform a long-term thesis and the potential for flat EPS in '15 due to generic Precedex (we estimate $0.30 of EPS) leaves us Equal-weight. "The path for margins is very back half loaded. HSP forecasts high teens EBIT margins in '18, or at least 700bps above '13 levels and near the company's historic high of 20% in '10, incorporating an optimistic forecast for biosimilars, but there is little clarity on the '14-'16 ramp. More visible is $200mn of annual savings coming over 5 years from lower quality spend in the SIP business, though the upside to margins is more back-end loaded as Vizag spending ramps.” Hospira closed on Wednesday at $45.80.