Hanger Downgraded to Strong Sell - Analyst Blog

Zacks Investment Research downgraded Hanger Inc. HGR by a notch to a Zacks Rank #5 (Strong Sell) on Mar 13, 2014.

Why the Downgrade?

On Feb 12, this premier provider of orthotic and prosthetic (O&P) patient care services reported its results for 2013-fourth-quarter ended Dec 31, 2013. Hanger witnessed downward estimate revisions after posting flat year-over-year adjusted earnings per share of 54 cents for the fourth quarter. Earnings, however, beat the Zacks Consensus Estimate by a penny.

Revenues increased 3.2% to $278.2 million but lagged the Zacks Consensus Estimate of $284 million. The increase was driven by an $11.1 million increase in the Patient Care segment revenues, partially offset by a $2.5 million decline in the Products & Services segment revenues.

The decline in Products & Services revenues was attributable to the impact of the acquisitions made by this segment in 2012 and 2013 on Hanger's distribution business as well as a fall in demand for higher priced prosthetic devices from independent O&P practices.

Hanger's adjusted operating margin fell 120 basis points to 12.7% in the fourth quarter due to higher material costs and accounts receivable reserves related to operational issues experienced at a small non-clinic unit within the Patient Care segment.

As of Dec 31, 2013, Hanger's cash and cash equivalents stood at $9.9 million, considerably down from $19.2 million at the end of 2012.

For fiscal 2014, one estimate moved down in the past 30 days, with no upward revision in the same time frame, sinking the Zacks Consensus Estimate by 0.5% to $2.16 per share.

Moreover, Hanger continues to face macroeconomic headwinds like reimbursement uncertainties, sequestration and RAC audits, which are likely to reduce the bottom line going forward.

Other Stocks to Consider

Some better-ranked medical product stocks are Enzymotec Ltd. ENZY, Covidien plc COV and Stryker Corp. SYK. While Enzymotec sports a Zacks Rank #1 (Strong Buy), both Covidien and Stryker hold a Zacks Rank #2 (Buy).