The nation's largest provider of pharmaceutical care for the elderly -- and Motley Fool Inside Value recommendation -- Omnicare (NYSE:OCR) has been on an acquisition binge.
Two recently completed acquisitions broadened the company's product offerings. Monday, Omnicare bought RxCrossroads, a specialty pharmaceuticals distributor. Last Friday, it purchased excelleRx, a hospice-focused provider.
But the big prize for Omnicare, already No. 1 in long-term patient pharmaceutical care, was the $1.8 billion acquisition of NeighborCare, the third-largest competitor. From sales of $4.1 billion in calendar year 2004, Omnicare is now poised to cross the $6 million mark in the coming year.
Omnicare has said that it expects the NeighborCare acquisition to "be significantly accretive to Omnicare's diluted earnings per share in 2006 and beyond." It should be, since the acquisition was done without issuing shares, and many expect NeighborCare's 5.7% operating margins to rise to levels closer to the 10.4% Omnicare enjoys.
There is good news regarding reimbursements, too. Government reimbursement changes have hurt the stocks of specialty hospital company Select Medical (NYSE:SEM), powered-wheelchair provider (among other things) Invacare (NYSE:IVC), and medical supply company -- and Motley Fool Hidden Gems recommendation -- PolyMedica (NASDAQ:PLMD). For Omnicare, there are no major reimbursement changes imminent and the company expects the Medicare drug benefit set for 2006 will have no adverse impact.
As if that weren't enough news, the company also filed a shelf registration that allows it to issue up to $2.8 billion in stock, debt, or other securities. The offering will allow Omnicare to refinance short-term borrowings used to fund the acquisitions. The sharp increase in its share price makes a stock offering look the most attractive -- especially to a company that had a debt-to-equity ratio of 62.7% before all these recent acquisitions. However, management has indicated that it will use both debt and equity financing in order to maintain its credit rating and strengthen its balance sheet.
Omnicare is the largest percentage gainer for the Motley Fool Inside Value newsletter. Since its November 2004 recommendation, the company has grown both earnings and its product offerings. Investors will want to keep an eye on how it integrates this latest round of acquisitions. But, as the No. 1 player in the game right now, the future looks bright for Omnicare.
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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see the Fool's disclosure policy.
