On Dec 24, we initiated our coverage on CareFusion Corporation (CFN) with a Neutral recommendation. Although CFN is well positioned to benefit from current trends in healthcare, we are concerned about continued pressure on margins and the effect of the transition of product line to Pyxis ES platform.
Why Neutral?
On Nov 7, CareFusion posted flat adjusted earnings per share of 44 cents for the first quarter of fiscal 2014 compared with the comparable quarter a year ago, but exceeded the Zacks Consensus Estimate of 40 cents. Adjusted net earnings fell marginally by 3% to $96 million from $99 million a year ago.
Revenues in the quarter dipped marginally by nearly 1% (both in reported and constant currency) to $830 million, but topped the Zacks Consensus Estimate of $818 million. The year-over-year decrease was driven by fall in Medical Systems revenues.
Following the release of fiscal first quarter results, the Zacks Consensus Estimate for fiscal 2014 earnings remained the same at $2.34 per share. However, the Zacks Consensus Estimate for fiscal 2015 earnings went up by a penny or 0.4% to $2.64 over the same time frame. CFN now has a Zacks Rank #3 (Hold).
CareFusion’s products are considered among top-spending priorities of healthcare providers given the pressing need for implementing infusion or dispensing technologies. For fiscal 2014, CFN expects revenues to grow between 1 and 4% on a constant currency basis.
However, the transition of product line to Pyxis ES platform is hampering CFN’s Medical Systems businesses. The transition is affecting performance of the dispensing technologies business, leading to unfavorable revenue mix and lower gross margins.
Other Stocks to Look For
Some better-ranked stocks worth a look in the medical products industry include NuVasive, Inc. (NUVA), Advaxis, Inc. (ADXS), and Chimerix, Inc. (CMRX). NuVasive carries a Zacks Rank #1 (Strong Buy), while both Advaxis and Chimerix bear a Zacks Rank #2 (Buy).
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