If you have ever visited an ill friend or relative in the hospital, you've probably noted the company name on the hospital bed: Hill-Rom (NYSE: HRC ) . The Hill-Rom name is so ubiquitous in hospitals that you might think it has a monopoly on hospital beds. In fact, it has had to fend off -- and eventually settle -- several antitrust lawsuits over the past decade.
So you might think that the $30 million legal settlement charge that Hill-Rom took in its latest quarterly earnings report would be for yet another antitrust lawsuit. It isn't. It has to do with a billing dispute the company has with the federal government, and that money may or may not have to eventually be paid.
However, because of that charge, Hill-Rom's earnings plunged 95%. Shares fell 20% on that earnings news and have fallen an additional 15% since on the general market turmoil.
Is that scalping deserved, or is Hill-Rom now a genuine bargain?
Buying opportunity?
When analysts expect $0.54 per share in earnings but the result turns out to be $0.02 per share, then yes, that would call for more than a polite "I daresay" in response. But the fall from $45 a share to $30a share because of that one-time charge was probably an overreaction.
True, one of Hill-Rom's three business segments, International, took a hit in Europe, which represents about 70% of the companies overseas revenues. Hill-Rom's CEO blamed that downturn on the "macro challenges" in Europe, and he anticipates that those challenges will lead to a year-over-year decline in fourth-quarter international revenues.
Consider the following table for Hill-Rom and some of its competitors. What I am pleased to see here are the solid returns on invested capital. This metric speaks to how well a company uses its money.
|
Company
|
Forward P/E
|
Forward Dividend Yield
|
Dividend Payout Ratio
|
Return on Capital (TTM)
|
| Hill-Rom Holdings |
12.1 |
1.5% |
22% |
15.2% |
| Kinetic Concepts (NYSE: KCI ) |
12.6 |
N/A |
N/A |
11.4% |
| Stryker (NYSE: SYK ) |
11.8 |
1.5% |
22% |
14.6% |
| Becton, Dickinson (NYSE: BDX ) |
12.9 |
2.0% |
27% |
14.6% |
| Invacare (NYSE: IVC ) |
11.0 |
0.2% |
4% |
6.9% |
Source: Yahoo! Finance.
ROIC computed from company earnings statements.
TTM = trailing 12 months.
My take
I think the pricing right now for Hill-Rom is quite attractive, but I don't think the company will have a sudden growth spurt. The worldwide economic problems will be a revenue constrictor for who knows how long. Also, domestically, proposed Medicare budget cuts could have a negative impact on Hill-Rom's business. If you do buy this stock, then buy it to sit on it … for a while.
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