PharMerica Corporation (NYSE:PMC) is a leading provider of pharmacy services that serves the long-term care, hospital pharmacy management, specialty home infusion, and oncology pharmacy markets. Hedge funds are long the stock because management has executed well in terms of acquiring pharmacies and integrating them into existing operations accretively.
On Feb 26, PharMerica shares fell substantially after the company reported weak EBITDA outlook for 2016 in its Q4 earnings results. Due to reimbursement headwinds across all payor segments including Part D, PharMerica guided for full year 2016 EBITDA of $130-$135 million versus 2015 EBITDA of $133 million. The flat EBITDA outlook is despite PharMerica expecting 2016 revenue to grow by 5% to 6% year-over-year. PharMerica also guided for $1.95 to $2.05 per share in adjusted diluted earnings for FY 2016, a number below expectations.
For the first quarter of 2016, management reaffirmed their previous 2016 yearly guidance, and delivered a better-than-expected quarter. For the first three months of the year, PharMerica earned $0.45 per share on revenue of $524.5 million, beating estimates by $0.02 per share and $15.05 million respectively. Revenue rose 2.5% year-over-year, while adjusted EBITDA fell 14.4%.
Despite the reimbursement headwinds and softer margins, PharMerica has several tailwinds that should allow it to do well. First, as a leader in cost containment in the industry, PharMerica is well positioned to garner more market share as its customers face rising cost and quality pressures. Second, rising generics adoption is a tailwind for the company as generics deliver better margins. PharMerica forecasts that its generic dispensing rate will rise to 88% by the end of 2018 from the current 86.6%. Third, the company believes that its home infusion and specialty oncology divisions will do well and estimates that each will deliver above average growth. Fourth, PharMerica plans to continue to acquire companies to increase its market share. The company has a goal of acquiring at least $100 million of annual revenues each year for the next few years. Because PharMerica management has shown proficiency in acquiring and integrating previous acquisitions, the company’s future acquisitions will likely add shareholder value.
Because of its smart acquisitions and strong earnings, PharMerica trades for only 11.6 times forward earnings. Given the aging population, increasing generic adoption, and management’s track record of making good deals, many hedge funds expect PharMerica earnings to grow for the foreseeable future. Analysts have a target price of $28.86.
After several tireless days we have finished crunching the numbers from the more than 700 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards PharMerica Corporation (NYSE:PMC).
PharMerica Corporation (NYSE:PMC) was in 19 hedge funds’ portfolios at the end of March. PMC shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 24 hedge funds in our database with PMC positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Eros International plc (NYSE:EROS), First PacTrust Bancorp, Inc. (NASDAQ:BANC), and PHH Corporation (NYSE:PHH) to gather more data points.
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Now, let’s take a gander at the fresh action surrounding PharMerica Corporation (NYSE:PMC).
How are hedge funds trading PharMerica Corporation (NYSE:PMC)?
According to Insider Monkey’s hedge fund database, David E. Shaw’s D. E. Shaw, holds the largest position in PharMerica Corporation (NYSE:PMC), reporting an $8.9 million position in the stock as of the end of March, comprising less than 0.1% of its 13F portfolio. The second most bullish fund is Jacob Gottlieb’s Visium Asset Management, with a $4.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism include Cliff Asness’s AQR Capital Management, Ken Fisher’s Fisher Asset Management and Nick Niell’s Arrowgrass Capital Partners.
Since PharMerica Corporation (NYSE:PMC) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedgies who sold off their positions entirely by the end of the first quarter. It’s worth mentioning that John Paulson’s Paulson & Co sold off the largest stake of the 700 funds watched by Insider Monkey, totaling about $17.4 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also said goodbye to its stock, about $7.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by the five funds during the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PharMerica Corporation (NYSE:PMC), but similarly valued. These stocks are Eros International plc (NYSE:EROS), First PacTrust Bancorp, Inc. (NASDAQ:BANC), PHH Corporation (NYSE:PHH), and Global Eagle Acquisition Corp (NASDAQ:ENT). This group of stocks’ market values match PMC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EROS | 12 | 49135 | -7 |
| BANC | 14 | 90686 | 1 |
| PHH | 17 | 228042 | -6 |
| ENT | 17 | 325125 | -1 |
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $39 million in PMC’s case. PHH Corporation (NYSE:PHH) is the most popular stock in this table. On the other hand, Eros International plc (NYSE:EROS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks PharMerica Corporation (NYSE:PMC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: none
