Omnicare OCR reported adequate third-quarter earnings Thursday, and we are impressed by the company's overall performance through the first nine months of the year. With top-line growth fixed, Omnicare has made some strides to improve margins through cost initiatives. We are leaving our fair value estimate in place for now, but a strong finish to the year would make us consider increasing it. Overall net revenue decreased around 2% to $1.54 billion from $1.58 billion in the year-ago quarter. The pharmacy services segment saw decreases in sales on lower reimbursements for certain drugs, along with the increased utilization of lower-cost generics. While this segment's adjusted operating profit fell around 6% year over year, overall operating income for the firm increased slightly on lower restructuring and litigation charges compared with the year-ago quarter. Overall cash generated through the first nine months of 2009 stood at $431 million.In other news, the firm announced Tuesday it would pay $98 million to settle charges that it engaged in kickback schemes with nursing homes to send customers Omnicare's way. Omnicare denied wrongdoing and issued a statement indicating the settlement pre-empted a longer, more costly legal battle. This is not the first time Omnicare has paid significant penalties to settle allegations of wrongdoing, and this repeated pattern of behavior is what drives our very poor Stewardship Grade for the firm.
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Analyst Notes
08-11-09 | 11:49AM Downgrading Omnicare's Moat
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