Citi Comments On Hospira, Give 2011 Outlook

The recent lack of direction in Hospira HSP shares has been attributed to a delayed Taxotere launch, but it views the shrinking P/E premium as a signal investors are growing wary of a potentially disappointing 2011 outlook and a 2012 “growth cliff.” Citi cut its 4Q EPS estimates for the Taxotere launch delay. Our 2011 EPS of $4.43 includes $0.90 of contribution from two well-known P-IV generic pharma launches, $0.22 of Project Fuel cost savings, and 13% underlying EPS growth. However, with an expected R&D ramp and management's recent streak of conservative guidance, the initial outlook could fall below the current Street view and pressure shares. P-IV launches were expected to add $0.10-0.15 to 4Q, but delayed Taxotere approval removes $0.12 from Citi's 4Q estimate. It anticipates a 1Q11 launch adding $280MM to sales and $0.77 to EPS in 2011. A narrowed lead time over other generics should limit upside views. Citi remains cautious heading into 4Q earnings and initial 2011 guidance given HSP's recent efforts to establish a low hurdle, especially in light of more optimistic views that outpace its above-consensus projection. Expectations surrounding P-IV contribution to sales and EPS will help dictate reaction to shares, and management may break this out similar to 4Q guidance. Citi has a Sell rating and $53 PT on HSP HSP closed Monday at $55.65