Hill-Rom Story Not Appreciated By Wall Street, Says Morgan Stanley

Morgan Stanley analysts David Lewis and Jonathan Demchick believe
Hill-Rom Holdings, Inc.HRC
's story has not been fully appreciated by the Street. The analysts placed this opinion against the backdrop of the company's recent creation of a more sustainable sales base, which boosts the potential for margin expansion.

The brokerage upgraded the stock to an Overweight rating from Equal Weight and boosted the price target to $62.00 from $54.00 on the company's shares.

Justification

The analyst pointed out that Hill-Rom stock dropped sharply after the second quarter financial numbers fueled mainly by a miss in the European Patient Support Systems unit. Its organic international growth was -21 percent and -9 percent in the second and first quarter of the fiscal year 2016.

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The brokerage elaborated, "There is evidence of improvement across the rest of the business over the past few quarters, as North America, Front Line, and Surgical revenues combined grew organically 7–8 percent in F1H16 (500 bps of comp-adjusted improvement vs. F2H15). Our recent diligence suggests emerging markets are stable and International growth like troughed in F2Q implying improvement for the balance of the year."

The analysts concluded that this growth recovery story is likely to be accompanied by enhancing margins as margins limited the stock performance last year. However, in the first quarter of the current year, margins were over 300 bps up with a better balance of organic enhancement on top of which Allyn mix/synergies that the broker expects continuing.

At time of writing, Hill-Rom was up 4.60 percent at $51.16.

Posted In: Long IdeasNewsUpgradesHealth CarePrice TargetAnalyst RatingsMoversTechTrading IdeasGeneralDavid LewisJonathan DemchickMorgan Stanley
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