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Stock Spotlight

Hospira can dull portfolio's pain

 

Given the stock-market carnage of the last 18 months, one of Hospira’s ($39; HSP) key products fills an acute need for many investors: cheap painkillers. Hospira manufactures both generic injectable drugs and the devices that deliver them.

During the recession, Hospira has run up against some unfavorable trends, most notably hospitals tightening their budgets and patients delaying elective — and even not-so-elective — medical procedures. Despite those pressures, Hospira has delivered per-share-profit growth of 19% over the last year. Helped by its own cost cuts, Hospira’s profits should continue to rise over the next year even if the economy remains weak. Hospira is a Buy.

Growth injection
Hospira’s specialty injectable pharmaceuticals unit (50% of sales over the last 12 months) boasts a portfolio of more than 200 generic drugs, primarily geared toward painkillers, anesthetics, and treatments for cardiovascular ailments and infections.

The devices segment (31%) includes such medication-management systems (MMS) as electronic pumps that deliver intravenous medications. Hospira also makes MedNet, a software program that helps hospitals manage drug dosages.

A third unit (19%) provides manufacturing support for biotechnology and pharmaceutical companies.

Hospira generates 77% of sales in the U.S, but the percentage of foreign sales is rising. Sales in Europe, the Middle East, and Africa (15%) have more than doubled since 2006, while Asian revenue quadrupled. The international exposure adds some volatility to revenue because of currency fluctuations but should boost growth.

The company ended 2008 with a pipeline of 40 molecules, including 21 submitted to regulators. Most of the compounds target drugs coming off patent in the next seven years.

Approved by United Kingdom regulators in April, piperacillin is a generic version of Wyeth’s ($45; WYE) Tazocin, an antibiotic that generated about U.S. $300 million in European sales last year. Hospira’s generic version awaits approval from U.S. regulators but should launch in other European countries this year.

Profiting from cost cuts
Hospira stands to benefit from President Obama’s pledge to lower health-care costs. Many of the most expensive treatments are difficult-to-copy biotechnology drugs, known as biologics and derived from living cells. Prescriptions for some biologic drugs can cost $100,000 a year.

While no generic biotechnology drugs have been approved in the U.S., Congress faces increasing pressure to allow cheaper copycat versions. Obama’s 2010 budget proposal identifies biogenerics as a means to save money. As the first U.S. company to sell biogenerics in Europe, Hospira has proven itself capable of manufacturing the copies, unlike most of its rivals.

Conclusion
Hospira shares have recovered strongly from March lows and are up 25% so far this year. Despite that surge, the shares remain attractively valued, trading at a discount to historical norms based on price/earnings, price/sales, price/cash flow, and price/book value ratios. An annual report for Hospira Inc. is available from 275 North Field Drive, Lake Forest, IL 60045; (224) 212-2711; www.hospira.com.

Hospira
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Quarter	Per-Share Earnings			Sales Change	Quarterly Price Range			P/E Ratio Range
Mar '09	$0.60	vs.	$0.55	-3%	$31.40	-	$21.21	12 - 8
Dec '08	0.78	vs.	0.63	-3%	38.85	-	23.00	16 - 10
Sep '08	0.63	vs.	0.49	+10%	41.22	-	36.96	18 - 16
Jun '08	0.57	vs.	0.49	+4%	43.93	-	39.13	20 - 18

Year (Dec.)	Sales (Bil.)	Per-Share Earnings*	Per-Share Dividend	52-Week Price Range			P/E Ratio Range
2008	$3.63	$1.57	$0.00	$44.00	-	$23.00	28 - 15
2007	3.44	1.03	0.00	44.64	-	33.60	43 - 33
2006	2.69	0.83	0.00	47.99	-	31.15	58 - 38
2005	2.63	0.37	0.00	45.10	-	28.35	122 - 77

Quadrix Scores†
Overall	Momentum	Value	Quality	Financial Strength	Earnings Estimates	Performance
90	77	73	83	54	66	82
* Earnings exclude special items. † Quadrix® scores are percentile ranks, with 100 the best.