The F1Q18 guide is underwhelming unless conservative, andpending that, FY18 looks achievable. We are more enthusiasticabout the LRP update, which if executed should narrow themultiple discount and create significant value. We remainOverweight.
　　If Hill-Rom executes the LRP, management will create a lot of value; RemainOverweight. We wanted a stronger F4Q17, and while the company delivered, theF1Q18 guide does not inspire confidence unless it proves conservative. Our thesishinges on a multi-year growth improvement and there is reason to believe thatprogress is being made. Simply put, if Hill-Rom delivers on the LRP, the 6-turndiscount to SMID multiples will narrow, and shares will outperform, in our view.The business has become more durable, and annual acceleration in organicgrowth is evident, but this transformation is not complete, and until then we willsee volatility during the quarters. Management must do a better job in riskadjusting that volatility in terms of quarterly guidance, and we hope F1Q18 willbe a step in the right direction. Building a reputation for delivering over the longterm while risk-adjusting near-term results is a definitive path to multipleexpansion and value creation. We remain Overweight with a price target of $90.
　　The updated LRP was above our expectations for growth and in line on margins.Hill-Rom's updated LRP guidance was above our growth estimate at 4-5% coregrowth and in line on margins at 19-20% operating margins in 2020. We noteHill-Rom met its prior LRP objectives a year early, and this time around thecompany has a stronger pipeline and exposure to faster growing end markets.That said, we see a few areas that require management diligence and vigilance: (i)the WAMGR of 2-3% implies Hill-Rom must gain share or expand into newmarkets; (ii) international growth has traditionally been challenged, and (iii) thereis still capital exposure (~35% of revenues) into the volatile hospitalenvironment. Please see The LRP was relatively inline with expectations for moredetails.