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AmerisourceBergen Reiterates Guidance

Zacks Equity Research

AmerisourceBergen Corporation (ABC) reiterated its guidance for fiscal 2014 at its analyst day held recently in New York.

AmerisourceBergen continues to expect earnings per share from continuing operations (excluding extraordinary items) in fiscal 2014 around $3.60 – $3.73, up 12% – 16% over $3.21 reported in fiscal 2013. The Zacks Consensus Estimate of $3.70 was well within the company's projected range.

AmerisourceBergen expects revenues to grow in the 28% – 31% range. Operating income is projected to grow in the 12% – 16% range. However, operating margin is estimated to decline due to the on-boarding of a significant new lower margin business.

AmerisourceBergen also expects to repurchase shares for $500 million, mostly in the second half of fiscal 2014.

We note that growth drivers in fiscal 2014 include generic launches, increased top-line growth due to the generic calendar and market expansion.

AmerisourceBergen's contract with Express Scripts (ESRX) and distribution agreement with Walgreens (WAG) should positively impact the top line in fiscal 2014. 

AmerisourceBergen streamlined its operations in fiscal 2013 in order to focus on its core specialty distribution business. We remind investors that the company sold its Canadian pharmaceutical distribution business, AmerisourceBergen Canada Corporation (TVTV) to Kohl & Frisch Limited in Jun 2013. In May 2013, the company also sold AndersonBrecon – its contract pharmaceutical packaging business clinical trials services business in the US and the UK – to a conglomerate of an investor group.

However, a decline in reimbursement rates for oncology drugs continues to be a challenge for AmerisourceBergen.

Nevertheless, we expect AmerisourceBergen to meet its set targets in fiscal 2014. The company increased its dividend by 12% in Nov 2013. The dividend increase and the share buyback program highlight the company’s commitment to return value to shareholders.

AmerisourceBergen currently carries a Zacks Rank #3 (Hold). Currently, McKesson (MCK) looks attractive with a Zacks Rank #1 (Strong Buy).

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