Pharmaceuticals Stocks

Hospira Inc. Annual Stock Valuation – September 2014 $HSP

Hospira_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Hospira Inc. (HSP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Hospira, Inc. (Hospira) is a provider of injectable drugs and infusion technologies. Hospira’s portfolio includes generic acute-care and oncology injectables, as well as integrated infusion therapy and medication management products. Hospira conducts operations worldwide and is managed in three reportable segments: Americas; Europe, Middle East and Africa (EMEA), and Asia Pacific (APAC). The Americas segment includes the United States, Canada and Latin America; the EMEA segment includes Europe, the Middle East and Africa, and the APAC segment includes Asia, Japan, Australia and New Zealand. In all segments, Hospira sells a line of products, including specialty injectable and other pharmaceuticals and medication management products. In July 2014, Hospira Inc acquired active pharmaceutical ingredient (API) manufacturing facility and an associated research and development (R&D) facility from Orchid Chemicals & Pharmaceuticals Ltd.
HSP Chart

HSP data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years - FAIL
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $52.21
MG Value $0.00
MG Opinion Overvalued
Value Based on 3% Growth $13.39
Value Based on 0% Growth $7.85
Market Implied Growth Rate 24.02%
Net Current Asset Value (NCAV) -$0.54
PEmg 56.55
Current Ratio 2.57
PB Ratio 2.71

Balance Sheet – 6/30/2014

Current Assets $3,060,700,000
Current Liabilities $1,191,500,000
Total Debt $1,748,900,000
Total Assets $6,401,800,000
Intangible Assets $1,210,200,000
Total Liabilities $3,151,200,000
Outstanding Shares 168,500,000

Earnings Per Share

2014 (estimate) $2.25
2013 -$0.05
2012 $0.27
2011 -$0.06
2010 $2.11
2009 $2.47
2008 $1.99
2007 $0.85
2006 $1.48
2005 $1.46
2004 $1.92

Earnings Per Share – ModernGraham

2014 (estimate) $0.92
2013 $0.49
2012 $0.96
2011 $1.36
2010 $1.97
2009 $1.82

Dividend History

Hospira does not pay a dividend.


Hospira Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has numerous concerns and is only satisfied with the market cap size and the current ratio.  The Enterprising Investor is similarly situated and is only satisfied by the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation standpoint, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.97 in 2010 to an estimated $0.92 for 2014.  This demonstrated drop in earnings does not support the market’s implied estimate of 24.02% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Hospira Inc. (HSP)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Hospira Inc. (HSP) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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