Riding the Hospira Yo-Yo

You kinda have to wonder what's going on with pharmaceutical and drug delivery company Hospira (NYSE: HSP  ) and its coterie of analysts. After all, this should be a relatively stable (and dare I say "boring"?) business. Yet Hospira has routinely delivered earnings surprises of double-digit magnitude -- both good and bad.

Whatever the cause, today was one of the good days. In place of an expectation of negative sales performance, Hospira squeaked out 0.3% growth and -- by its self-contrived formula of excluding certain sales items -- the growth of "core sales" was in excess of 10%. Margins improved notably, and adjusted earnings performance was well ahead of the analyst "consensaguess."

I was certainly pleased to see that margin improvement. Ever since this company separated from Abbott Labs, (NYSE: ABT  ) part of the story has centered around getting out of less profitable businesses -- bad for sales growth in the short-run, but better for margins and profitably in the long run. And while I don't have a 10-Q in front of me with all the details therein, I'd say it's making progress on that front.

Through no real fault of their own, Hospira operates in something of a backwater of health care investment, alongside other solid, but not spectacular, companies like Baxter (NYSE: BAX  ) and Becton Dickinson (NYSE: BDX  ) . Now, "backwater" is music to my ears, since it often means that you can find unappreciated gems that Wall Street and retail investors just don't care that much about.

Maybe Hospira's current valuation doesn't make it a "gem," but that's not really within its control. Return on capital is within its control, however, and that looks pretty good to me; at a bare minimum the company is earning back its cost of capital with a little room to spare. While the stock of this company may have a few more spills, thrills, and chills than you'd otherwise think it should, there's a base of solid growth at the foundation of this story.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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