On Mar 4, 2014, Zacks Investment Research downgraded BioScrip Inc. (BIOS) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
BioScrip witnessed downward estimate revisions since it reported disappointing fourth-quarter 2013 earnings results on Feb 26.
In the fourth quarter, BioScrip’s net loss from continuing operations of 7 cents per share witnessed a massive decline from the year-ago adjusted earnings per share (EPS) of 2 cents. The results also considerably lagged the Zacks Consensus Estimate of earnings of 2 cents. Notably, the company delivered negative earnings surprises in 3 of the last 4 quarters with an average miss of 116.67%.
BioScrip is still battling margin headwinds as the high-margin PBM business continues to decline. Although the company is working toward margin improvement, any near-term improvement is unlikely.
Reimbursement pressure remains an overhang for the company’s home health franchise. Although Infusion Services business continues to grow at a healthy pace, the poor performance at the PBM Services segment is weighing on the margin. The dearth of any major near-term catalyst might make it difficult for BioScrip to overcome these challenges in the near future, which is also reflected in the company’s unimpressive guidance for fiscal 2014.
According to the company, in 2014, its Infusion Services segment is expected to grow at a rate of 20% with double-digit organic growth. However, similar to this recently completed fiscal, even in 2014, growth in Infusion Services revenues will be offset by a decline in the PBM Services segment and the sale of the Home Health Services business. Total gross margin is anticipated to suffer due to the sale of Home Health, growth in the low-margin Infusion business and decline in the high-margin PBM Services segment’s gross margin.
Other Stocks to Consider
Not all healthcare stocks carry an unfavorable Zacks Rank like BioScrip. Stocks like Herbalife Ltd. (HLF), Rite Aid Corp. (RAD) and CVS Caremark Corp. (CVS) are likely to perform well in the near term and hence, warrant a look. All these stocks carry a Zacks Rank #2 (Buy).
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