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Here's Why Investors Should Retain AmerisourceBergen Stock

Zacks Equity Research

AmerisourceBergen Corporation ABC is expected to benefit from its first-quarter fiscal 2019 results and a strong Pharmaceutical Distribution unit. However, sluggishness in the MWI unit might hurt prospects.

Price Performance

In a year’s time, shares of this Zacks Rank #3 (Hold) company have lost 11% compared with the industry's 4.4% decline. The current level also compares unfavorably with the S&P 500 index's 0.6% decrease. Sluggishness in the MWI unit and an intensely competitive industry negatively impacted the company's prospects.

Let’s take a quick look at AmerisourceBergen’s major headwinds and discuss the factors that ensure near-term recovery.

Why Should You Retain the Stock?

AmerisourceBergen’s Pharmaceutical Distribution segment serves healthcare providers in the pharmaceutical supply channel. At this unit, the company has been witnessing solid revenue growth for the last couple of quarters. Markedly, Pharmaceutical Distribution rides on increasing volume and an expanding customer base. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to medical care, improved economic conditions and population demographics should benefit the segment in the quarters to come.

In the first quarter of fiscal 2019, revenues at this segment totaled $43.74 billion, which increased 12.3% on a year-over-year basis. However, segmental operating income of $373.2 million declined 3.9% year over year. Meanwhile, the company’s Specialty Distribution franchise of oncology and physician administered products continues to perform exceptionally well.

We are also optimistic about the deals signed by AmerisourceBergen, which should boost its top line. By the end of first-quarter fiscal 2019, management at AmerisourceBergen announced that it currently partners with Good Neighbor Pharmacy Network, Walgreens and others on safe drug disposal programs.

MWI Slows Down

MWI unit’s revenues remained flat in the first quarter of fiscal 2019. Per management, the metric was negatively impacted by certain issues. From an operating income standpoint, MWI’s operating income of $99 million decreased about 1% year over year. MWI experienced pressure relating to rebates as well. Moving ahead, the company’s operating income growth rate is expected to improve with consistently strong customer relationships and commercial partnerships.

These apart, AmerisourceBergen’s Memphis facility (PharMEDium) is not likely reopen in this fiscal year.

For fiscal 2019, adjusted earnings per share are expected in the range of $6.65-$6.85, lower than the previous guidance of $6.65-$6.95. Also, adjusted operating income growth is expected in the low-single-digit percent range. Pharmaceutical Distribution segment’s operating income growth is too projected to be the low-single-digit percent range.

Which Way are Estimates Trending?

The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.98, up 2.1% year over year. The same for revenues stands at $43.7 billion, mirroring a 6.4% improvement year over year.

For fiscal 2019, the Zacks Consensus Estimate for earnings is pinned at $6.75, up 4% year over year. The same for revenues is pegged at $180.2 billion, reflecting a 7.3% improvement year over year.

AmerisourceBergen Corporation Price and Consensus

 

AmerisourceBergen Corporation Price and Consensus | AmerisourceBergen Corporation Quote

Key Picks

A few better-ranked stocks in the broader medical space are Surmodics, Inc SRDX, Abbott Laboratories ABT and Cardiovascular Systems, Inc. CSII.

Surmodics has a long-term expected earnings growth rate of 10%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abbott’s long-term earnings growth rate is projected at 11.7%. The stock carries a Zacks Rank #2 (Buy).

Cardiovascular Systems exceeded the Zacks Consensus Estimate in the trailing four quarters, the average being 77.1%. The stock sports a Zacks Rank of 1.

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AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report
 
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