Why PharMerica Corporation (PMC) Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of PharMerica Corporation (NYSE:PMC), the second-largest nursing home pharmacy in the U.S., dipped as much as 19% after the company disclosed the loss of a large client in an 8-K filed with the Securities and Exchange Commission after the bell yesterday.

So what: According to its SEC filing, PharMerica Corporation (NYSE:PMC) has been informed by Kindred Healthcare, Inc. (NYSE:KND), its largest customer, that it would not be renewing its contract for skilled nursing pharmacy services when it's due to expire on Dec. 31. Kindred Healthcare, Inc. (NYSE:KND) was responsible for 11.5% of PharMerica Corporation (NYSE:PMC)'s total revenue last year. To add insult to injury, Bank of America Corp (NYSE:BAC)/Merrill Lynch cut its price target on PharMerica Corporation (NYSE:PMC) by $1 to $17 from $18, citing the projected loss of 10% of gross profit, although it did also point to cost savings from no longer dealing with Kindred as a positive.

Now what: No magic wand is going to fix the loss of PharMerica Corporation (NYSE:PMC)'s largest customer -- at least in the short run. On paper, PharMerica Corporation (NYSE:PMC)'s story makes sense because an aging baby boomer population will soon need greater access to medical care of all forms, including within nursing facilities. However, I have to wonder if Kindred's departure is an anomaly or a trend of things to come in a highly competitive space. For now I'd suggest sticking to the sidelines and seeing how the next few quarters play out for PharMerica.

Craving more input? Start by adding PharMerica to your free and personalized watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in pharmacy stocks like PharMerica, the best investing approach is to choose great companies and stick with them for the long term.

The article Why PharMerica Shares Sank originally appeared on Fool.com.

Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of, and recommends, Bank of America.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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