Omnicare Inc.OCR

Morningstar Rating

Stock Research and Analysis

by Bill Buhr

During the last few years, Omnicare has faced regulatory challenges, lawsuits, a plant closing, and customer defections. We think the company has a chance to rebound, but we are still concerned by the actions of management, growing competitive threats, and the new regulatory environment. Read more

Bulls Say

Omnicare remains the largest pharmacy provider in the United States, with a market share of roughly 70%.

Demographic trends and the general aging of the U.S. population support the company's business model and should expand the institutional pharmacy market during the next decade.

Omnicare is implementing a new hub-and-spoke operating model that should improve operating efficiencies and could lead to cost savings of more than $100 million annually. Read more

Bears Say

Omnicare has been party to a number of lawsuits alleging false billing by Medicare and Medicaid, and it could continue to face legal action and potential fines and penalties.

The number of beds served by Omnicare through its contracts with nursing homes and other health-care providers continues to decline, indicating a potential deterioration in its relationships with customers.

The implementation of the Medicare Part D plan puts Omnicare in contact with more private and third-party insurers, which could lead to less-profitable, more-scrutinized contracts.

The competitive landscape is growing more ominous, as PharMerica continues to gain ground on Omnicare. Read more

Strategy

Omnicare selectively acquires smaller pharmacies with established nursing home contracts in an effort to add patients while achieving operating efficiencies. The firm relies on its cost leadership mantra and is implementing a new hub-and-spoke operating model. Read more

Management

We are extremely displeased with management's recent behavior, and we assign Omnicare a Stewardship Grade of F. Omnicare has been involved in several lawsuits over its corporate practices, including allegations of false billing and switching patients to drugs with better margins. Read more

Profile

Founded in 1981, Omnicare is the leading provider of pharmaceuticals to seniors nationwide. It purchases and distributes drugs to nursing homes, hospices, and assisted-living centers, representing more than 1. Read more

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