Saturday, April 26, 2014

Beaten Down Small Cap BioScrip Inc (BIOS): Time for a Second Look? IHF & XLV

Beaten down small cap home care and infusion stock BioScrip Inc (NASDAQ: BIOS) was recently called a potential takeover target, meaning its worth taking a closer look at the stock along with healthcare ETFs like the iShares Dow Jones US Health Care ETF (NYSEARCA: IHF) or the Health Care SPDR ETF (NYSEARCA: XLV). I should mention that during the third quarter of last year, we had BioScrip in our SmallCap Network Elite Opportunity (SCN EO) portfolio after the stock had taken a beating but we also believed the company is on the verge of turning a profit and is potentially undervalued.

What is BioScrip Inc?

Small cap BioScrip is a leading provider in comprehensive, cost-effective pharmaceutical, home care solutions and infusion solutions. BioScrip partners with physicians, healthcare payors, government agencies, hospital systems and pharmaceutical manufacturers to provide patients access to post-acute care services by delivering customer-focused pharmacy and related healthcare infusion therapy services in alternate-site settings.

There really aren't any other publicly traded socks that offer a good benchmark for comparison with BioScrip, but the iShares Dow Jones US Health Care ETF tracks the Dow Jones U.S. Select Healthcare Providers Index by investing in 49 health care provider stocks while the Health Care SPDR ETF tracks the S&P Health Care Select Sector Index through 56 holdings in Pharmaceuticals (47%), Biotechnology (18.11%), Health Care Providers & Services (15.46%), Health Care Equipment & Supplies (15.14%), Life Sciences Tools & Services (3.59%) and Health Care Technology (0.70%).

What You Need to Know or Be Warned About BioScrip Inc

Earlier this month, Oscar Schafer, the managing partner of O.S.S. Capital Management and chairman of Rivulet Capital, mentioned BioScrip as a stock pick and a potential takeover target while on CNBC. But it should be mentioned that in mid January, Schafer was part of a Barron's Roundtable when he talked about the company in detail and stated:

We recently bought a large stake in BioScrip [BIOS]. In the past few years CEO Rick Smith has radically transformed the company from its retail and mail-order-pharmacy roots into one of only three national providers of home-infusion-therapy services. BioScrip stumbled last year in integrating four major acquisitions, creating an opportunity for us. Demand for infusion therapy is growing at a mid-teens rate as a result of aging demographics and a robust pipeline of specialty drugs that need to be delivered intravenously. Infusion therapy traditionally was administered in a hospital, but has shifted to an outpatient setting in the past two decades. Home therapy is more comfortable for the patients and much more cost-effective than hospital and in-patient settings.

He added that the home infusion market is a highly fragmented one with 70% of infusion pharmacies being independent, but the large managed-care companies are pushing into the industry to consolidate in order to ensure consistency of care. The other national consolidators include Option Care, which Walgreen Company (NYSE: WAG) acquired in 2007, and Coram, which was purchased by CVS Caremark Corporation (NYSE: CVS) in November. In addition:

Government reimbursement isn't a big risk for BioScrip. Medicare doesn't cover home infusion, which forces patients to get treatment in the high-cost hospital setting. Eventually, the government will fix this issue.

Late last February, BioScrip fell as much as 13% after the reporting fourth quarter earnings that exceeded top line expectations but also missed at the bottom line. Specifically, fourth quarter revenue from continuing operations increased 34.7% to $243.5 million as Infusion Services segment revenue totaled $212.0 million verses $135.6 million thanks to the acquisitions of HomeChoice and CarePoint plus strong organic growth while the loss from continuing operations, net of taxes, was $15.4 million verses a net loss of $1.4 million. Revenue from continuing operations for 2013 rose 27.1% to $842.2 million for 2012 as Infusion Services segment revenue came in at $697.3 million verses $481.6 million while the loss from continuing operations, net of taxes, was $53.6 million verses a net loss of $8.3 million. The CEO did comment that:

"We believe that 2014 is off to a strong start. The recently announced agreement to sell our Home Health division, combined with our debt refinancing, enhances our financial flexibility and allows us to focus on growing our infusion platform to drive shareholder value creation. Our strong clinical programs, customer-focused model and flexible go-to-market approach are the cornerstones of our infusion program and position us very well in the industry."

Otherwise, it should be noted that BioScrip will release its 2014 first quarter financial results on Thursday, May 8, after the market closes.

Share Performance: BioScrip Inc vs. IHF & XLV

On Thursday, small cap BioScrip fell 0.14% to $7.36 (BIOS has a 52 week trading range of $5.61 to $17.62 a share) for a market cap of $501.86 million plus the stock is up 1.24% since the start of the year, down 43.7% over the past year and up 200.4% over the past five years. Here is a look at the long term performance of BioScrip verses that of health care performance benchmarks iShares Dow Jones US Health Care ETF or the Health Care SPDR ETF:

As you can see from the above performance chart, small cap BioScrip has given investors a more volatile performance than health care benchmarks iShares Dow Jones US Health Care ETF or the Health Care SPDR ETF:

Finally, here is a look at the latest technical charts for all three investments: 

The Bottom Line. Despite the past problems, small cap home care and infusion stock BioScrip might just be worth a closer look before the stock reports earnings in two weeks.

SmallCap Network Elite Opportunity (SCN EO) previously had an open position in BIOS. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.

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