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Why PharMerica Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of PharMerica (NYSE: PMC  ) , a pharmacy services company, jumped as much as 11% after reporting better-than-expected first-quarter results.

So what: For the quarter, PharMerica saw revenue fall nearly 12% to $439.8 million as higher generics being sold sapped sales. However, adjusted EPS rose 39% to $0.46, compared to $0.33 in the year-ago period. Wall Street had only been expecting PharMerica to earn $0.34 per share on $435.1 million in sales. In addition, the company delivered record quarterly pharmacy gross margins, fueled by reduced inventories and better accounts receivable collection, and resulting in a 140% jump in cash flow from the year-ago period.

Now what: On one hand, an increase in generic usage is going to continue to pressure PharMerica's revenue, requiring the company to maintain strict inventory controls in order to grow its bottom line. On the other hand, at just 91% of book value and with management reaffirming its full-year forecast, there's plenty of reason for PharMerica's rally to continue. Personally, I feel PharMerica has slightly more upside than downside at these levels; however, I'd keep a close eye on its margins to dictate where it heads next.

Craving more input? Start by adding PharMerica to your free and personalized Watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in pharmacy services companies like PharMerica, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Related Tickers

9/28/2016 10:07 AM
PMC $27.56 Down -0.10 -0.36%
PharMerica CAPS Rating: **