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PMC, PharMerica Corporation will be proven right turning down $15 from Omnicare

Overall Score: 3

 

Chart: 1

See chart

Analyst Opinion: -1

Strong Buy 1
Buy 1
Hold 6
Underperform 0
Strong Sell 0

 

Insider Trading: 1

 

Management Discussion and Analysis: 0

Omnicare withdrew from their hostile takeover offer at $15 share after FTC moved to block the takeover

Government and Regulation risk is high

Shift from Branded to Generic drugs is resulting in accelerating margin compression

Pharmacies are subject to federal and state laws regulating financial relationships with healthcare providers

Pharmacies are licensed and are regulated under the DEA and FDA

These laws and regulations may impact business practices (anti kickback,Stark laws)

Recent Healthcare legislation may impact reimbursement rates for drugs sold

Company is subject to HIPAA

Company might be subject to shareholder lawsuits relating to failed takeover by Omnicare

Reduction in manufacturer’s rebate will have a negative impact on margins

Continuing efforts to contain healthcare costs are likely to impact margins negatively

Kindred provides all of the Company’s Information services, potential for cost increases

Growth in 2011 sales was primarily due to acquisitions. Volume and pricing improved and was partially offset by increased generic sales and pricing concessions

Gross margins improved as a result of improved rebates under a new vendor agreement

Company guided to lower revenue at $1.9-1.95bn, with EBITDA at $93-102mm

 

Stock Performance Relative to Market: -1

 

Sector Outlook: 0

Healthcare sector is up 10%YTD, Overall stable outlook, it would seem that the regulation risk is low-minimal for now.

 

Free Cash Flow: 1

Cash flow is growing, and adjusted for one time payments aggregating $99.7mm, CFO in 2011 would have been $126.5mm

2009 2010 2011
Revenues $1,841.2 $1,847.3 $2,081.1
COGS 1,565.7 1,607.0 1,787.8
Gross Profit 275.5 240.3 293.3
Amortization 9.0 9.3 11.0
G&A 190.8 180.6 214.9
EBIT 75.7 50.4 67.4
D&A 27.0 28.1 31.1
EBITDA 102.7 78.5 98.5
Capex (21.6) (12.6) (13.2) One time cash flow items 2011
Interest (11.2) (3.2) (7.6) AmeriBergen extra Friday payment 29.6
Working Capital (9.3) 32.3 (55.2) Inventory increase to improve margins 57.4
Taxes (1.6) (0.4) (0.5) ChemRx acquisition adjustment 12.7
FCF 59.0 94.6 22.0 Total 99.7
CFO 85.0 98.2 26.8
CFI (76.1) (133.2) (64.0)
CFF 1.0 (5.4) 43.8
Net Income 42.2 19.2 23.4

 

PEG Ratio: 1

P/E 15.32
2011 2012
EPS 0.79 1.19
PEG Ratio 0.30x

 

Valuation: 1

 

Adjusted FCF for 7 yrs from 10 yrs

Adjusted growth rate to 1%

10 yr treasury at 3%

Investment rate is adjusted higher to closer match depreciation rate

Equity risk premium assumed at 5%

Beta is taken from finance.yahoo

 

Catalyst: 0

Reversal on healthcare cost controls, increased manufacturer’s rebates

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