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Goldman Sachs Raises Price Target On Hill-Rom Holdings (HRC)

 February 15, 2012 09:26 AM

Goldman Sachs has increased its price target for Hill-Rom Holdings (HRC) shares to $38 from $35 on higher price earning ratio multiple and higher long-term EPS estimates. However, the brokerage maintained its Neutral rating.

For the year 2013, EPS estimate is lifted to $2.76 from $2.60 and for 2014 to $2.97 from $2.85. Similarly, revenue estimate is increased to $1.685 billion from $1.618 billion for 2012, and for 2013 to $1.800 billion from $1.686 billion. For the year 2014, Goldman Sachs raised revenue projection to $1.884 billion from $1.767 billion.

The action follows after the company disclosed the completion of Volker acquisition for $85 million in cash.  Volker sells bed frames, surfaces and furniture to acute/post-acute facilities, with yearly sales of $105 million by Goldman Sachs estimates. More than 75 percent of sales are tied to Europe, of which a sizeable portion comes from Germany, where capex trend remain relatively well insulated. The company indicated that earnings would be accretive after 2012.

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As a result, Goldman Sachs raised its EPS estimates for 2013 – 2015 to indicate increased international segment sales offset by higher selling, general and administration estimates. The brokerage is now looking for 2012 – 2015 compounded annual growth rate in earnings of 8.7 percent and 7.6 percent, while revenue CAGR is expected to be 5.2 percent and 4.6 percent respectively.

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Analyst David Roman viewed acquisition Volker positively, but his view on HRC shares remain the same. He sees Hill-Rom's NA bed business to be strong, but expects infrastructure spending to remain a priority for US hospitals in 2012. The gross margins would come under pressure and EU capex trends will be a concern since Hill-Rom failed to meet revenue growth in two of three quarters after its long-range plan were announced.

The brokerage does not see any revenue growth acceleration moving ahead. After the company preannounced its first quarter earnings, its shares have rebounded meaningfully. But Goldman Sachs sees limited additional upside in stock price. The brokerage maintained Neutral rating.

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