Shares of medical products provider Hospira
Sales were up 9% in the quarter and net income spiked 78%, but it's the cash flow that matters the most, and operating cash flow for the full year was actually down 26%.
Hospira combines several disparate businesses, but I've never seen such volatility in a medical products supplier every time its quarterly financial results are released. Only its medication delivery systems division is growing enough (16% in the quarter) to generate any sort of interest. Guidance for 2007 is for sales growth excluding the Mayne Pharma acquisition of 3%-5%. Operating cash flow is expected to be in the $500 million to $550 million range, which would be up at least 18% versus 2006 -- but this is still down from the $570 million that was brought in for 2005, even with the addition of a large acquisition.
This year will be marked by how well Hospira can integrate Mayne Pharma's operations into its own and what sort of synergies it can wring out of the deal. Hospira deserves credit for detailing higher margins on its products this quarter. The problem is that shares are trading at least 10 times over operating cash flow for next year -- and with revenue growth coming mainly via acquisitions, I'll pass on shares of Hospira until they get much cheaper.
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