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AmerisourceBergen Corporation ABC is well-poised for growth on the back of its robust pharmaceutical distribution business and prudent acquisitions. Intense competition remains a concern.
The stock has gained 28.1%, compared with the industry’s growth of 19.1% on a year-to-date basis. The S&P 500 Index has rallied 22.1% in the same time frame.
AmerisourceBergen — with a market capitalization of $26 billion — is one of the world’s largest pharmaceutical services companies, which is focused on providing drug distribution and related services to reduce health care costs and improve patient outcomes. It anticipates earnings to improve 11.3% over the next five years. The company beat earnings estimates in each of the trailing four quarters, the average surprise being 5.4%.
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Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Deterring the Stock?
AmerisourceBergen operates in a highly competitive pharmaceutical distribution and related health care services market. The company’s primary competitors include Cardinal Health CAH, McKesson, and national generic distributors and regional distributors. Consequently, increased competition can impact the company’s business.
What’s Driving Growth?
Pharmaceutical Distribution serves healthcare providers in the pharmaceutical supply channel. AmerisourceBergen has been witnessing strong revenue growth in this unit in the last couple of quarters. Increasing volume and an expanding customer base have been driving the segment. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to medical care, enhanced economic conditions and population demographics are likely to continue benefiting the segment in the quarters ahead.
In fiscal third-quarter 2021, revenues in the segment totaled $49.31 billion, up 13.2% on a year-over-year basis. The upside can be attributed to increase in specialty product sales, including COVID-19 treatments and overall market growth. Segmental operating income was $483.9 million, up 13.4% year over year. Solid performance across the company’s distribution businesses, which include higher sales of specialty products, contributed to the upsurge.
AmerisourceBergen has been actively pursuing acquisitions to strengthen its core areas. In January 2021, the company inked a strategic deal with Walgreens Boots Alliance to acquire the majority of the latter’s Alliance Healthcare business for around $6.5 billion, which comprises $6.275 billion in cash and 2 million shares of AmerisourceBergen common stock.
In June, the company closed this buyout, which will provide a boost to AmerisourceBergen’s platform. This, in turn, will help the platform deliver sustained growth throughout pharmaceutical distribution and manufacturer services. The deal will offer expanded scale and added services that will enable the combined business to better support pharmaceutical innovation through a global presence of broad leadership and local expertise.
AmerisourceBergen has been witnessing an upward estimate revision trend for fiscal 2021. In the past 60 days, the Zacks Consensus Estimate for its earnings has moved north by 3.8% to $9.21.
The Zacks Consensus Estimate for fiscal fourth-quarter 2021 revenues is pegged at $56.69 billion, suggesting growth of 15.1% from the year-ago reported number.
Stocks to Consider
Two better-ranked stocks from the broader medical space are Henry Schein, Inc. HSIC and Envista Holdings Corporation NVST, both currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henry Schein’s long-term earnings growth rate is estimated at 13.9%.
Envista Holdings’ long-term earnings growth rate is estimated at 27.4%.
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Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report
Henry Schein, Inc. (HSIC) : Free Stock Analysis Report
Envista Holdings Corporation (NVST) : Free Stock Analysis Report
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