Institutional Pharmacy Provides Value Investors With Opportunity
November 19, 2009 - The Wall Street Transcript has just published TWST Small Cap Value Report offering a timely review of the Diversified Investments sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Carl Gardiner is a Portfolio Manager on the Small Cap Value Equity Fund. Mr. Gardiner has been a financial analyst for over 18 years, including eight years in investment analysis and management. Prior to joining Schafer Cullen Capital Management, he was an investment analyst and portfolio manager at two research-driven, value-oriented investment funds, Copper Arch Capital and North Sound Capital. From 1992 to 2000, he was a Director at Merrill Lynch, as an investment banker in New York and London. Mr. Gardiner began his career at Fox Asset Management, a value-oriented money management firm. He received a MA degree in International Economics from Johns Hopkins School of Advanced International Studies in 1992 and a BA degree with High Honors from the University of Virginia in 1989.
TWST: Would you be able to give us any examples of the type of companies that are like core holdings or new acquisitions?
There are far fewer of those just lopsided, obviously mispriced opportunities, so we are now back more into our normal mode of finding situations that are overlooked. In this vein, the last stock I'd mention is our most recent purchase, Omnicare (OCR). Omnicare trades at a little over 9 times 2009 earnings, with a $2.8 billion market value. Omnicare is the largest institutional pharmacy in the US, serving skilled nursing facilities and assisted living facilities, with a 50% share of this market. There are some interesting things going on at Omnicare that have great potential to boost returns over the next two to three years. Most importantly, having consolidated the industry, the company is finally taking advantage of its scale. Omnicare is nearly through an initiative to automate and centralize certain repetitive functions, so that it can downsize its over 200 regional pharmacies saving over $100mm a year in costs and freeing resource for customer retention activity. Omnicare has a number of other cost-saving initiatives underway as well. Finally, the wave of branded drugs going generic gives Omnicare a gross profit lift, and while this has been underway for the past few years, there is still some runway here. Those are a few examples I would give of how we apply the strategy.
CARL GARDINER
Schafer Cullen Capital Management, Inc.
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