Hanger to Trade In-line

The following excerpts explain why Zacks senior healthcare industry analyst Gregory Aurand, CFA remains neutral on Hanger Orthopedic Group, Inc. (HGR), the medical products company:

'In November 2007, the company acquired three patient-care firms (Stagner Orthopedic in TN, Specialized Prosthetic & Orthotic Technologies in Utah, and MHC Prosthetics in Maryland) that collectively generate revenues of about $3.5 million and are immediately accretive to EPS. Hanger Orthopedic Group, Inc. faces competition in the market it operates. It competes with independent O&P businesses for referrals from physicians, therapists, employers, HMOs, PPOs, hospitals, rehabilitation centers, out-patient clinics, and insurance companies on both a local and regional basis.

'In spite of such competition, the company is the $2.5 billion O&P U.S. market leader with an approximate 22% share of the total industry revenues. Moreover, none of its competitors has a market share of more than 2% of the country's total estimated O&P patient-care service revenue.

'We are revising our outlook slightly upward on the acquisitions. However, we believe the company should trade in-line with comparables and our position remains a Hold. Our target moves lower to $11.50, or roughly 16x our expected 2008 EPS of $0.72, in-line with the comparables' average of 1.3x 2008 P/E/G.'

TEF Strategy with Risks

The following excerpts explain why Zacks senior telecom industry analysts David Weissman, CFA reiterates his Hold rating for Spanish telecommunications giant Telefonica S.A. (TEF) after upping the target price by almost $28:

'We maintain our Hold rating for Telefonica, the largest telecommunications company in Spain and Latin America. Quarterly results on a sequential basis continue to exceed our expectations. Both top-line and bottom-line improved following recent acquisitions by the company. However, the competitive environment remains challenging and we are cautious about the company's aggressive acquisition strategy, along with the integration process following such initiatives.

'Telefonica continues to generate strong free cash flow, although their dividend payout plans are limited and may be of concern to value investors. Also, the stock is trading near the high, reflecting growth projections that may be a stretch. Furthermore, there is the need to consider the currency exchange rate, which is associated with the euro vs. U.S. dollar as the dollar may be reaching its lower inflection point.

'Telefonica is trading at 15.7x our 2007 earnings estimate, which is at a discount to the industry average as well as to the S&P 500 metric.