Drug delivery firm Hospira (NYSE: HSP) is in the midst of integrating a major acquisition, which could end up helping it boost otherwise boring growth prospects.
Anemic second-quarter organic sales growth of 2.8% helps illustrate that Hospira needs assistance on the top line. The February purchase of "Australian-based specialty injectable pharmaceutical company" Mayne Pharma Limited played the primary role in the delivery of impressive reported sales growth of nearly 30%, but time will tell if this truly helps "position Hospira for sustained growth."
Quarterly bottom-line trends were hit by charges and other accounting adjustments related to the Mayne acquisition. Management highlighted that adjusted earnings grew almost 14% as respectable domestic medication delivery systems and international third-party sales growth flowed through to operating earnings. For the full year, it expects 26%-28% sales growth, consisting of 3%-4% organic growth and the rest from adding Mayne to the mix. It's also targeting adjusted earnings of $2.11-$2.16, putting Hospira's forward P/E at about 18.
As fellow Fool Brian Lawler recently pointed out, Hospira's cash flow trends have been uneven as of late, and management has tempered current expectations to $450 million-$500 million, based on guidance provided in the earnings release. And based on current capex projections, free cash flow will come in somewhere around $1.50 per share.
That's not enough cash flow for me to get excited about the stock, and the fact that Hospira is still integrating a large acquisition makes me even more wary. Throw in a hefty debt load to buy Mayne, and it may be even longer before shareholders see the benefit of recent moves to inject more life into the existing operations.
Overall, it appears that Abbott Labs (NYSE: ABT) made the right decision by spinning off Hospira in late 2004. Since that time, shares of Hospira are up close to 30%, but Abbott is up about 50% as it has been left to focus on faster-growing businesses. Again, the Mayne purchase may help enhance prospects as it competes with rivals such as Baxter (NYSE: BAX), Teva Pharmaceuticals (Nasdaq: TEVA), Fresenius Medical Care (NYSE: FMS), and Cardinal Health (NYSE: CAH). But until tangible signs emerge, put Hospira in your "boring stock" watch list.
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Fool contributor Ryan Fuhrmann is long shares of Cardinal Health, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.
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