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AmerisourceBergen Corporation (NYSE:ABC): Does The Earnings Decline Make It An Underperformer?

Simply Wall St

After reading AmerisourceBergen Corporation's (NYSE:ABC) most recent earnings announcement (30 June 2019), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether AmerisourceBergen's performance has been impacted by industry movements. In this article I briefly touch on my key findings.

View our latest analysis for AmerisourceBergen

Was ABC weak performance lately part of a long-term decline?

ABC's trailing twelve-month earnings (from 30 June 2019) of US$956m has declined by -12% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 30%, indicating the rate at which ABC is growing has slowed down. Why could this be happening? Let's examine what's going on with margins and whether the whole industry is feeling the heat.

NYSE:ABC Income Statement, August 13th 2019

In terms of returns from investment, AmerisourceBergen has invested its equity funds well leading to a 29% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 2.9% is below the US Healthcare industry of 5.2%, indicating AmerisourceBergen's are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for AmerisourceBergen’s debt level, has declined over the past 3 years from 19% to 18%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 100% to 145% over the past 5 years.

What does this mean?

Though AmerisourceBergen's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. I suggest you continue to research AmerisourceBergen to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ABC’s future growth? Take a look at our free research report of analyst consensus for ABC’s outlook.
  2. Financial Health: Are ABC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.