Why PharMerica Shares Sank

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  ) , the second-largest nursing home pharmacy in the U.S., dipped as much as 19% after the company disclosed the loss of a large client in an 8-K filed with the Securities and Exchange Commission after the bell yesterday.

So what: According to its SEC filing, PharMerica has been informed by Kindred Healthcare (NYSE: KND  ) , its largest customer, that it would not be renewing its contract for skilled nursing pharmacy services when it's due to expire on Dec. 31. Kindred was responsible for 11.5% of PharMerica's total revenue last year. To add insult to injury, Bank of America/Merrill Lynch cut its price target on PharMerica by $1 to $17 from $18, citing the projected loss of 10% of gross profit, although it did also point to cost savings from no longer dealing with Kindred as a positive.

Now what: No magic wand is going to fix the loss of PharMerica's largest customer -- at least in the short run. On paper, PharMerica's story makes sense because an aging baby boomer population will soon need greater access to medical care of all forms, including within nursing facilities. However, I have to wonder if Kindred's departure is an anomaly or a trend of things to come in a highly competitive space. For now I'd suggest sticking to the sidelines and seeing how the next few quarters play out for PharMerica.

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 stocks 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.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2503182, ~/Articles/ArticleHandler.aspx, 4/20/2014 12:26:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement