We maintain our long-term Neutral recommendation on BioScrip Inc. (BIOS). Although the company has several positive catalysts to drive growth over the long haul, looming concerns keep us on the sidelines for this pharmacy benefit manager and infusion service provider.
Why the Reiteration?
BioScrip’s results in the most recent quarter surpassed the Zacks Consensus Estimate. While revenues shot up 27.3% year over year, adjusted earnings per share was in line with the year-ago results.
Following the divestment of pharmacy services business to Walgreens (WAG), BioScrip increased its focus on its Infusion franchise. This is reflected in the recent acquisition of HomeChoice which will significantly boost revenue in the future. The buyout is expected to be accretive to BioScrip’s annual top-line by $70 million. However, we are apprehensive about integration risks.
While the company enjoys strong presence and competitive advantage in the Infusion and Home Health industry, the competitive landscape with larger players and deeper pockets remains unyielding. The competitive pressure also led to aggressive price wars in the last quarter. Consequently, margins remained under pressure.
The decline in Home Health reimbursement rates from certain government players also negatively impacted the company by creating a challenging operating environment. We note that BioScrip derived 33% of its revenues directly from Medicare, Medicaid or other government-sponsored healthcare programs in the third quarter. Reimbursement cuts are therefore a looming concern.
Based on these factors, estimates for 2013 for BioScrip have remained stagnant over the last 30 days. Accordingly, the stock carries a Zacks Rank #3 (Hold).
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