BOSTON (MarketWatch) � Despite a recent bump in the stock, drug industry analysts are still largely cautious about buying Hospira Inc. shares as the specialty pharmaceuticals maker struggles to bring its manufacturing operations back into regulatory compliance.
Hospira�s HSP � woes began in 2010, when the U.S. Food and Drug Administration issued the company a warning letter about its quality-control practices, particularly those at its Rocky Mount, N.C. manufacturing plant. The facility reportedly contributed almost a quarter of the company�s revenue at the time.
/quotes/zigman/346012/quotes/nls/hsp HSP 34.09, +0.05, +0.15%
As a result, Hospira has been forced to temporarily shut down or limit production of certain products as it brings its operations back into compliance. Hospira�s problems have been further compounded by the recall of some of its drug-delivery pumps.
Investors first took the company�s regulatory issues in stride, and despite the warning letter, pushed the stock to a 52-week peak of $59.20 last April.
But the party came to an end in October, when a far weaker-than-expected earnings report spooked investors and tanked the stock. Hospira shares hit a 52-week low of $26.92 in early December, but managed to climb into the mid-$30s over the past month. And the stock got a needed boost on Tuesday, when a better-than-expected earnings report sent shares up nearly 10%. The stock closed at $37.92 on Thursday.
Most analysts, however, still remain guarded about the stock�s near-term prospects. As of Feb. 15, the average rating was hold, with a price target of $35.40, according to FactSet.
Leerink Swann analysts, for example, maintained their market perform, or hold, rating after Tuesday�s earnings report. They did, however, raise their valuation to $36 a share from $30, and noted the company appeared to be working hard to resolve its regulatory issues.
�In 2012 and 2013, Hospira will likely be a �show-me� story as management works to resolve ongoing quality control, manufacturing, and customer service-related issues,� wrote Leerink Swann analyst Rick Wise, in his note issued Tuesday.
�With the overhang of timing uncertainty likely to be in place for at least the next few quarters, we�re inclined to move to the sidelines until we gain greater clarity,� he continued.
�We�re also inclined to think Hospira shares could remain range-bound in the near term given what seems likely to be a protracted period of uncertainty that could stretch into mid-to-late 2012,� Wise added.
Collins Stewart analysts were more optimistic, raising their price target Tuesday to $43 from $35. The firm has a buy rating on the stock.
�We believe that Hospira�s earnings potential is still under-appreciated by the Street,� wrote Collins Stewart analyst Louise Chen in her note.
�We expect Hospira to update its long term financial guidance for 2012 to 2016 as it progresses through 2012. Once the company reaches an inflection point in supply, sales should improve,� said Chen, adding that Hospira�s product supply should �stabilize� by 2013.
Chen also said that if Hospira were able to resume marketing of its recalled drug pump Symbiq, noticeably improve production at its Rocky Mount plant, and launch several new products, the stock could go up to $60 a share within the next 12 months.
However, if the company faces further FDA action, drug supplies do not improve, its sedation drug Precedex ends up facing early generic competition, and few new drugs are launched, the stock could sink to $33 a share. One of Precedex�s key patents expires in July 2013.
RBC Capital was more pessimistic and maintained its sell rating.
�Given our fundamental thesis that getting manufacturing back to �normalized levels� will take longer than investors expect and that competition to key products, such as docetaxel and vancomycin, could significantly pressure the top line, we maintain our underperform rating on the stock,� wrote RBC analyst Shibani Malhotra, in his note on Tuesday.
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