) delivered a 5.1% earnings surprise in the second quarter and
issued a favorable guidance for 2012. This marks the sixth straight
quarter with a positive earnings surprise for this pharmaceutical
service provider. With a price-to-book (P/B) multiple of just 0.96
and a price-to-sales (P/S) ratio of 0.6, this Zacks #1 Rank (Strong
Buy) offers a promising value proposition for investors.
Mixed Second Quarter
On July 25, Omnicare reported second quarter 2012 adjusted earnings
of 83 cents per share, beating the Zacks Consensus Estimate of 79
cents. Reported net income came in at $18.7 million, compared with
a loss of $1.4 million in the year-ago quarter.
Gross profit was $367.3 million in the second quarter, up 9.2% year
over year. Adjusted EBITDA from continuing operations was up 16.4%
to $170.3 million.
Sales declined 1.3% year over year to $1,536.0 million, missing the
Zacks Consensus Estimate by 1.8%. Net sales of the Long Term Care
Group were down 6.7% to $1,202.8 million, while net sales of the
Specialty Care Group were up 25.7% to $330.1 million.
Long-term debt (including notes and convertible debentures) was
sizeable at $2.0 billion, up 3.5% year over year.
Bullish on 2012
For 2012, Omnicare revised its adjusted earnings per share guidance
upward to between $3.22 and $3.28, compared to the earlier outlook
of $3.10 to $3.20. The company also increased its forecast for cash
flows (from continuing operations) to the range of $425 million to
$525 million, compared with the previous range of $400 million to
$500 million. OCR continues to expect revenues between $6.1 billion
and $6.2 billion.
Earnings Estimates Heading Higher
All seven estimates have been revised higher for 2012 in the last
seven days, which has propelled the Zacks Consensus Estimate by
5.5% to $3.25. This represents an earnings growth of 52.7%.
Three out of seven estimates have been revised upward for 2013 over
the same timeframe, pushing the Zacks Consensus Estimate higher by
3.3% to $3.45, reflecting an implied growth of 6.2%.
Relatively Inexpensive Stock
Although shares plummeted around October 2011, they have since
recovered to current levels. In addition to low P/B and P/S
multiples, the stock is currently trading at a P/E multiple of
9.67. Going by the usual indicators of a P/E multiple below 15.0, a
P/B ratio under 3.0 and a P/S ratio under 1.0 for a value stock,
Omnicare appears to be undervalued.
The PEG ratio for the stock is 0.87, based on a 3- to 5-year
earnings per share growth rate of 11.2%. This metric is at a 13%
discount to the generally accepted yardstick of 1.0 for a fairly
valued stock. It implies favorable growth potential as well.
Based in Cincinnati, Ohio, Omnicare is a Fortune 400 company with a
market capitalization of about $3.6 billion. Its larger Long Term
Care Group is the biggest provider of pharmacy services to elderly
communities across the U.S. Its much smaller Specialty Care Group
provides a spectrum of offerings aiding distributors, manufacturers
and providers who take care of patients with complicated
OMNICARE INC (OCR): Free Stock Analysis Report
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