On Jan 22, we issued an updated research report on CareFusion Corp (CFN). We expect the company to grow by virtue of its strong and diversified product portfolio, innovative pipeline, strategic initiatives along with ongoing cost-control measures and increasing operating efficiency.
However, the company remains exposed to pricing and utilization headwinds in certain end-markets. Also, regulatory reforms and intensifying competition are added concerns.
This San Diego, CA-based company is currently in the process of being acquired by Franklin Lakes, NJ-based Becton, Dickinson (BDX) for a total consideration of approximately $12.2 billion. We expect CareFusion to realize major synergies from the merger which is expected to close by mid-2015.
The intended merger has the potential to expand the combined entity’s geographical reach and focus extensively on emerging market growth. With more than 50% of its revenues coming from overseas markets, we believe that Becton, Dickinson will be able to drive CareFusion’s international sales.
We note that CareFusion highly relies on innovation to develop new and differentiated products. Notably, in fiscal 2014, the company launched more than 20 products. With significant R&D investments and an innovative product pipeline, we believe that CareFusion is poised to drive and sustain high-single-digit sales growth over the long term.
However, legislative reforms in the U.S. healthcare industry have significantly altered the healthcare landscape. The implementation of the 2.3% annual medical device excise tax, effective Jan 2013, continues to have an adverse impact on the company’s operating results. Additionally, lower reimbursements for medical products and services could result in pricing pressure and decreased demand for the company’s products.
Moreover, CareFusion faces stiff competition in each of its business lines from domestic and international companies. We believe that intense competition from the likes of Baxter International (BAX) and CR Bard (BCR) will continue to pressure pricing that may hurt profitability in the long run.
Currently, CareFusion carries a Zacks Rank #3 (Hold).
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