Analysts downgrade Diplomat Pharmacy on 10-K filing delay

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Analysts for William Blair and SVB Leerink downgraded Diplomat Pharmacy (NYSE:DPLO) after the company delayed reporting fourth-quarter results and filing its 10-K. The stock fell $7.59, or 56%, to $5.87 in heavier than normal trading on Feb. 22.

Analyst John Kreger of William Blair downgraded the stock to “underperform” from “market perform,” writing that the three-week filing and reporting delay reflects the company’s plans to take a large write-off for its recently acquired pharmacy benefit manager (PBM) business.

Diplomat also withdrew its 2019 guidance and Mr. Kreger lowered his 2019 per-share earnings target by 33 cents to 50 cents to reflect “quite troubling disclosures in Friday morning’s release about the recent performance in both the PBM business and in the core specialty pharmacy operations.”

Analyst David Larsen of SVB Leerink downgraded Diplomat to “market perform” from “outperform” and slashed his price target to $6 from $24.

“In our view, continued PBM client losses make it clear that the company's PBM strategy has failed,” he said. “Management appears to have low visibility and awareness of the competitive dynamics and tactics utilized in the specialty market, and we are concerned by comments that the reduced specialty volumes disclosed are not a one-month aberration.”

Mr. Larsen said mega-mergers in the sector seem to be putting very significant pressure on specialty volumes, and the migration to a new claims platform as well as management turnover seems to be causing even more losses in the PBM business.

“While we believe management will likely seek to put the entire business up for sale, we also believe the core fundamentals of the business continue to deteriorate,” he added.

Stephen Kilmer