We are maintaining our Neutral recommendation on
BioScrip Inc.
(
BIOS
) with a target price of $7.25.
BioScrip reported a loss of 4 cents per share from continued
operations in the first quarter of fiscal 2012, wider than the
year-ago quarter loss of 2 cents. Reported results also missed the
Zacks Consensus Estimate of break-even results
.
Earlier in 2010, BioScrip initiated a strategic assessment of
its business and operations based on which the company started
focusing on its fast growing Infusion/Home Health Services
segment. As a result, on May 4, 2012, BioScrip divested
certain Pharmacy Services assets including pharmacy mail operations
and community retail pharmacy stores to
Walgreen Co.
(
WAG
) for $225 million, including approximately $161 million in cash
and retention.
Based onthe huge potential of the Infusion Services business
leading to persistent growth of BioScrip in this segment (up 18.9%
year over year to $109.1 million in the last reported quarter), the
company has taken a strategic initiative to focus more on this
rising sector. The company recently repositioned certain assets of
its pharmacy business and redirected the resources of the divested
business to support the existing Infusion services business.
We are encouraged by the company's decision to invest in the
Infusion and Home Health industry where it has a strong presence
and enjoys competitive advantages. Our views are also buoyed by the
estimates of the National Home Infusion Association ('NHIA'), which
stated that the alternate-site infusion therapy sector currently
represents $9-$11 billion per year in US health care
expenditure.
Further, formerly, BioScrip's Pharmacy Services segment included
community pharmacy stores, mail, traditional especially pharmacy
mail and PBM and Cash Card services. However, after the recent sale
of the assets to Walgreen, the company now has only the PBM
services and cash card business left with it.
Nevertheless, the company is hopeful about the continued growth
in PBM and cash card business. The company expects revenue in the
range of $100-$105 million for fiscal 2012. We remain optimistic
about BioScrip's PBM growth and think that the company is perfectly
positioned to leverage its strong clinical reputation for
growth.
However, BioScrip's highly leveraged balance sheet continues to
be a drag on the bottom line and remains a key area of concern, in
our view. Moreover, the Home Health industry was impacted by the
reduction in Medicare reimbursement and the new face-to-face
requirement. This may temper BioScrip's sales growth going
forward.
Additionally, we remain apprehensive owing to mounting
competitive pressures from players like
CVS Caremark
(
CVS
),
Express Scripts
(
ESRX
) as well as many smaller organizations that operate on a local or
regional basis. Increased competition has led to lower pricing and
increased rebate sharing, thereby putting severe pressure on
margins.
BioScrip currently maintains a Zacks#3 Rank, which translates
into a short-term Hold rating.
BIOSCRIP INC (BIOS): Free Stock Analysis Report
CVS CAREMARK CP (CVS): Free Stock Analysis
Report
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
Report
WALGREEN CO (WAG): Free Stock Analysis Report
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