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AmerisourceBergen (ABC) Down 10.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for AmerisourceBergen (ABC). Shares have lost about 10.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AmerisourceBergen due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AmerisourceBergen Q3 Earnings & Revenues Top Estimates

AmerisourceBergen delivered third-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.76 surpassing the Zacks Consensus Estimate of $1.63 by 7.9%. The figure also improved 14.3% year over year.

The better-than-expected bottom-line performance can be attributed to increase in adjusted operating income, lower share count and reduced net interest expense.

Revenues improved 4.9% to $45.24 billion in the reported quarter. Moreover, the figure beat the Zacks Consensus Estimate by 0.01%.

Segmental Analysis

Pharmaceutical Distribution Segment

Revenues at this segment totaled $43.53 billion, improved 4.7% on a year-over-year basis. Overall market growth, consistent robust specialty product sales and increase in volume related to growth of some of its largest customers contributed to the improvement.

Segmental operating income was $411.7 million, up 4.9% year over year. Increase in gross profit drove the upside. However, an increase in operating expenses partially offset the uptick.

Other Segment

This segment includes AmerisourceBergen Consulting Services (ABCS), World Courier and MWI Veterinary Supply.

Revenues at this segment came in at $1.73 billion, up 8.6% year over year. This upside was driven by ABCS's growth in Canadian operations and MWI.

Operating income in the segment was $95.1 million in the quarter, up 15.6% year over year primarily on the back of the results at MWI.

Margin Analysis

In the quarter under review, AmerisourceBergen reported adjusted gross profit of $1.2 billion, up 4.9% on a year-over-year basis. As a percentage of revenues, adjusted gross margin was 2.7% in the quarter, which remained flat year over year.

AmerisourceBergen reported adjusted operating income of $506.7 million, up 6.8% year over year. As a percentage of revenues, adjusted operating income was 1.1% in the quarter, up 2 basis points year over year.

Guidance Revised

Adjusted EPS is now estimated in the range of $7.00-$7.10 (up from the previously guided range of $6.70-$6.90). The Zacks Consensus Estimate is currently pegged at $6.86, which is within the guided range.

Adjusted operating income is projected to grow in the range of 3-4% (up from low-single digit percent range).

Operating income at Pharmaceutical Distribution Services segment is expected to grow in the band of 2-3% (down from low-single digit percent range).

Further, the company anticipates weighted average diluted shares to be about 212 million, down from the previous estimate of around 214 million.

Notably, per management, all the other previously announced aspects of the company’s fiscal year 2019 financial guidance and assumptions remain intact.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, AmerisourceBergen has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise AmerisourceBergen has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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