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AmerisourceBergen Corporation Message Board

  • new_millenium_profits new_millenium_profits Jan 3, 2004 12:08 AM Flag

    Pop Didn't Happen :(

    I was disappointed to not see the pop I expected in ABC today, but I still am very positive about the stocks' future. It appears we saw support at $53 and as the conference call approached we went above $54 only to drop back down in late afternoon after we did not have the conference call. I believe we will have the call on Monday and it will not be doom and gloom and we should see a pop in price then as the Wall Street traders will be back from the holidays and the market will be somewhat more liquid, although ABC was heavily traded the last couple of days. I don�t believe there was any intention of delay of the announcement of the award of the VA contract, sometimes the decisions comedown to the wire. I was in sales a few years ago and remember calling in a large multi-million dollar order on 12-31 which I needed to make my plan and was still negotiating late in the day. It felt really good to get the signed PO and fax it in to corp. It meant a lot for my year end bonus so I was really sweating it. (The customer was a govt agency and had to spend the money by 12-31 or lose it)

    I think this may have been a similar situation with MCK pulling this rabbit out of the hat. I also think there may be a hidden agenda that may not be apparent right now. MCK has 3 basic business segments, Pharmaceutical Solutions, Medical-Surgical Solutions, and Information Solutions. From their last 10K they gave the following information:

    Revenue 2003 2002 2001
    Ph Sol $53,238.4M $46,258.1M $38,342.5M
    Med Sol $2743.4M $2726.0M $2715.8M
    IT Sol $1139.0M $1004.0M $941.8M

    Gross Profit
    Ph Sol $2047.2M $1788.4M $1502.1M
    Med Sol $523.1M $524.2M $520.9M
    IT Sol $532.2M $475.9M $394.0M

    Gross Margins
    Ph Sol 3.85% 3.87% 3.92%
    Med Sol 19.97% 19.23% 19.18%
    IT Sol 46.73% 47.40% 41.83%
    Combined Total 5.43% 5.58% 5.75%

    To noxid_n:

    You said I was way off base with my calculations yesterday regarding the profit margins used in my calculations. I got them from the ABC latest 10K. You said they were in reality much higher. Again, here are the margins I used: Net margin 1.12% and Gross 3.85%. Notice the 3.85% matches the MCK gross profit margin!

    All:

    I think the fact that MCK is being very quiet on the contract may be a result of further business that will be announced in their other business segments. I think looking at their numbers above, they may have low balled the drug quote to get the IT business and the surgical business. They may have to be quiet since they don�t have a signed contract yet!

    I agree with noxid_n about the drug business is now a commodity business that is being fought for by the big 3 CAH, ABC and MCK.

    I still stand by my previous posts about ABC being a good value at these prices. The future revenue growth may be diminished right now, but as big as ABC is I believe they will be moving toward more diversification as MCK has and from the published 10K�s, they certainly are not in any deep trouble. I think this is a good safe company to own.

    For those who care, I have made a lot of money off BBC before it was ABC and then I have made a lot of money off ABC. It has not been through buy and hold. I have bought when there were big drops like over the last couple of days, and then sold after making reasonable profit and when it appeared to be losing steam. As I mentioned in an earlier post today, I supplement my long positions by selling near the money and out of the money PUT�s. This strategy gives me the ability to lower my base price until a bottom is reached. It is the same as price averaging, but the option premiums provide a little additional profit.

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    • Your assumption is the worst case scenario - an all out price war. IMO, that assumption is flawed. We don't have enough information on the strategic objectives etc... ABC will not engage in a price war. IMO, neither will CAH. MCK may, but we don't know that for certain based on this deal or the previous deal they won. In fact, if they do compete on uneconomic terms they may look good for awhile, but they will suffer in the long term. Just look what the market did to the stock on this supposed victory.

    • I'll get to it this evening after work. :-)

    • <<At the end of the last quarter ABC was sitting on a significant pile of cash. If the company really wants to put all these fears to rest they should not only address the pricing issues and their ability to cut costs to offset this contact loss, they should announce a share repurchase plan at the bargain price! >>

      I would do the opposite. If I am going into a price war, I want to ensure that I have sufficient resources to fight a long sustained battle. If I dole out my cash now, and later need to tap into the equity or debt markets because I am loosing the battle, I will find those markets vewry, vewry expensive. Best to save those precious resources to deploy the most effective means at winning new accounts in the future as well as keeping the current accounts.

    • Check your e-mail.

    • >Wcrimi are you on yahoo messager? <

      No. But if you want to reach me privately you can send an e-mail to my yahoo account by the same name (wcrimi). I rarely check it (mostly junk mail). Just let me know. I'll be here regularly.

    • At the end of the last quarter ABC was sitting on a significant pile of cash. If the company really wants to put all these fears to rest they should not only address the pricing issues and their ability to cut costs to offset this contact loss, they should announce a share repurchase plan at the bargain price!

      That would not only help grow EPS, at this price be a good use of any excess cash that is currently earning very low rates on return.

    • >Wildly overlown? I wish I had listened to those same wildly overblown worries at $64 recently. <

      IMO, you and Wall St are both overreacting based on the information that is currently available. More will be available tomorrow and even more will be available after we get a chance to hear from MCK about why they bid so aggressively etc..

    • I purchased the bulk of my BBC shares at $4.50. I took an interest to the wholesalers after the FTC disallowed the Cardinal/Bergen and McKesson/Amerisource mergers. I could not see going wrong at $4.50.

      I did sell 75% of my ABC postition near the end of 2002 and in 2003. I sold, not because of ABC, but because the biotech stocks I follow, dropped to 1/2 their cash holdings. Also, a new FDA Commissioner was appointed. Those biotech positions are up over 100% this year and still only selling at cash value, so I expect another double in 2004. I guess this would fit the definition of investing.

      ABC was a safe haven for money when the bubble burst and I still consider it a very good investment. I gather alot of info about the drug wholesalers by simply talking to pharmacist and ABC is in a very good position.

      And sorry about yesterday's exchange. I will refrain from posting on the board.

      Good Luck.

      Wcrimi are you on yahoo messager?

    • new_millenium_profits,

      Part II

      <<Widh MCK not talking about this contract award still makes me think they have something else that we don't know about now that will come out soon and provide the logic behind why they bid low enough to steal this business from ABC.>>

      Don't forget about Tenet. They could simply be going for market share, knowing that the market leader gains efficiency of scale, marketing and purchasing prowess, bragging rights, and has the ability to beat its competitors to a pulp. Just ask Jeff Bezos of Amazon.

      <<For a contract like this, there are a lot of factors that enter into who gets the business and it typically would have to be a significant difference for the government to make all the bureaucratic changes to change from the incumbent.>>

      Exactly, so you know it was more than a few pennies. And from the lack of positive reaction on MCK, you can further assume it was more than a few pennies.

      <<For me, if ABC continues to go lower, I will continue to add to my long position through taking delivery on exercised puts and selling covered calls. I still believe (for noxid_n...hope) the price will be above $60 by the end of January.>>

      Gawd I wish it would be above $60 by month-end. I think we'll be lucky to see the high 50s. My guess is somewhere between $52-58, with $54-55 being most likely.

      <<I think the market in general is overbought and due for a correction before continuing up. I think that correction will come in the next few weeks with the first quarter finishing either where we started Jan 2 or slightly below.>>

      If you think the market is overbought, then you ought be concerned about ABC. When managers sell the market, they will sell ABC with reckless abandon because there is no compelling reason why the stock should go higher immediately.

      There is a good article by Laffer in this week's Barron's magazine. He argues that the market is much, much too low. I can argue both: market is too high and it is too low. So I just try to pick winning stocks and let the market figure itself out.

      <<Compared to many companies, ABC to me has a strong set of financials. I think this is currently priced attractive, especially when you factor in the dividends. I believe the funds will be looking for the larger strong companies after the correction and this should drive the P/E back to a respectable level.>>

      I differ, of course. ABC have a very low dividend rate, neglible in my mind. I think the dividends were simply issued to allow funds that must buy only dividend paying stocks to consider ABC. It's net margin is low, very low, and
      witout VA, it's net margin will be that much lower because a) reduced purchasing power; and b) no longer has VA attractive net margins to goose up its overall margins.

    • new_millenium_profits,

      Part I

      A well-written post.

      With respect to your trading style, I agree. You will have done well in the past if you bought in the lows 60s and sold in the low 70s and just repeated the pattern.

      Naked puts can boost your returns. But don't think that they are the panacea. Here's why:

      1. You need margin: At present the exchange minimum margin on a "naked" short option is the greater of: (1) 20% of the underlying minus the amount the stock is out-of-the-money; or, (2) 10% of the underlying.

      2. If you stock hovers near the put price, you have effectively 20% margin requirement. If you sell puts far, far away from the strike, your put premium is small, so why bother.

      3. Your profit is limited to simply gaining the put premium.

      4. Buy a stock on margin (establishing a new position) requires a 50% margin. While the margin requirment is higher, so are my potential returns.

      So if we're in a bull market, I can tie up a lot of capital (20% margin) for very limited returns, or I can tie up even more capital (50% margin) for much larger gains. Heck, the Nasdaq is up about 100% this year.

      <<I agree with noxid_n that the cc will not be full of doom and gloom, and it also will not give hard evidence of how they are going to fill in this revenue loss.>>

      No conference call will ever be doom-and-gloom. You can bet the boys were in on the weekend figuring out what they are going to say and how they are going to say, and what questions to anticipate and how to answer those questions. They are going to put a full court press into making this conference call a success, as best they can.

      Given that they have egg all over their face from this last fiasco (we're highly confident of winning the VA contract), that they will keep their mouth shut on any future sunny projections for a while. Their credibility is a bit low right now, rightfully or wrongfully.

      <<With the 3 big players in this market, ABC, CAH, and MCK, to gain market share/increase revenue you need to take business from one of the other two. All the rest of the business not held by one of these three is very small. The only other way to grow revenue is to diversify, which is what MCK has done.>>

      Yup, agreed. But other complimentary revenue sources by oen will soon be mimicked by the other two.

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