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Omnicare Inc. (OCR) delivered a 5.1% earnings surprise in the second quarter and issued a favorable guidance for 2012. This marks the sixth straight quarter with a positive earnings surprise for this pharmaceutical service provider. With a price-to-book (P/B) multiple of just 0.96 and a price-to-sales (P/S) ratio of 0.6, this Zacks #1 Rank (Strong Buy) offers a promising value proposition for investors.

Mixed Second Quarter

On July 25, Omnicare reported second quarter 2012 adjusted earnings of 83 cents per share, beating the Zacks Consensus Estimate of 79 cents. Reported net income came in at $18.7 million, compared with a loss of $1.4 million in the year-ago quarter.

Gross profit was $367.3 million in the second quarter, up 9.2% year over year. Adjusted EBITDA from continuing operations was up 16.4% to $170.3 million.

Sales declined 1.3% year over year to $1,536.0 million, missing the Zacks Consensus Estimate by 1.8%. Net sales of the Long Term Care Group were down 6.7% to $1,202.8 million, while net sales of the Specialty Care Group were up 25.7% to $330.1 million.

Long-term debt (including notes and convertible debentures) was sizeable at $2.0 billion, up 3.5% year over year.

Bullish on 2012

For 2012, Omnicare revised its adjusted earnings per share guidance upward to between $3.22 and $3.28, compared to the earlier outlook of $3.10 to $3.20. The company also increased its forecast for cash flows (from continuing operations) to the range of $425 million to $525 million, compared with the previous range of $400 million to $500 million. OCR continues to expect revenues between $6.1 billion and $6.2 billion.

Earnings Estimates Heading Higher

All seven estimates have been revised higher for 2012 in the last seven days, which has propelled the Zacks Consensus Estimate by 5.5% to $3.25. This represents an earnings growth of 52.7%.

Three out of seven estimates have been revised upward for 2013 over the same timeframe, pushing the Zacks Consensus Estimate higher by 3.3% to $3.45, reflecting an implied growth of 6.2%.

Relatively Inexpensive Stock

Although shares plummeted around October 2011, they have since recovered to current levels. In addition to low P/B and P/S multiples, the stock is currently trading at a P/E multiple of 9.67. Going by the usual indicators of a P/E multiple below 15.0, a P/B ratio under 3.0 and a P/S ratio under 1.0 for a value stock, Omnicare appears to be undervalued.

The PEG ratio for the stock is 0.87, based on a 3- to 5-year earnings per share growth rate of 11.2%. This metric is at a 13% discount to the generally accepted yardstick of 1.0 for a fairly valued stock. It implies favorable growth potential as well.

Based in Cincinnati, Ohio, Omnicare is a Fortune 400 company with a market capitalization of about $3.6 billion. Its larger Long Term Care Group is the biggest provider of pharmacy services to elderly communities across the U.S. Its much smaller Specialty Care Group provides a spectrum of offerings aiding distributors, manufacturers and providers who take care of patients with complicated conditions.

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