AmerisourceBergen Corporation ABC is gaining on progress in its pharmaceutical distribution segment and prudent acquisitions. However, tough competition has been offsetting the positives to some extent.
The leading pharmaceutical services company has a market capitalization of $20.24 billion. The company’s earnings are anticipated to improve of 7.1% over the next five years. This Zacks Rank #3 (Hold) company has a trailing four-quarter positive earnings surprise of 5.1%, on average.
In the past three months, the stock has gained 15.9% compared with 8% growth of its industry.
Let’s delve deeper into the factors working in favor of the company.
Pharmaceutical Distribution in Focus: Pharmaceutical Distribution serves healthcare providers in the pharmaceutical supply channel. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to medical care, better economic conditions and population demographics should benefit the segment in the quarters to come. In second-quarter fiscal 2020, revenues at this segment grew 9.3% on a year-over-year basis. Consistent robust specialty product sales, increase in volumes and overall market growth contributed to the improvement.
Strategic Acquisition: AmerisourceBergen has been actively pursuing acquisitions to strengthen its core areas.
The MWI Veterinary acquisition has diversified the company’s existing pharmaceutical distribution and services businesses into the attractive animal health market, which holds huge potential at the moment. MWI Veterinary Supply sells pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, supplies, pet food and nutritional products. Organic growth, innovative product introductions and market share gains continue to boost AmerisourceBergen’s business. In first-quarter fiscal 2020, AmerisourceBergen’s Other business unit was significantly driven by MWI apart from ABCS and World Courier. The acquisition is expected to keep driving growth for AmerisourceBergen.
Deals to Boost Business: We are positive about the deals signed by AmerisourceBergen, which should boost its top line.
The company announced that it has extended the term of its 10-year pharmaceutical distribution agreement with Walgreens Boot Alliance for three years till 2026.
Notably, the company entered into a long-term strategic relationship with OneOncology— a national partnership of community oncologists in the United States. Additionally, Innomar Strategies, the Canadian operations business unit of the company, added Chronically Simple to its digital solutions portfolio. UPS Forward drone airline announced its drone logistics partnership with AmerisourceBergen. The collaboration will deploy the former to transport certain pharmaceuticals, supplies and records to qualifying medical campuses, which are served by AmerisourceBergen across the United States, and then extend its use to other sites of care.
However, there is a factor marring growth.
Competitive Industry: AmerisourceBergen operates in a highly competitive pharmaceutical distribution and related health care services market. The company’s primary competitors include Cardinal Health, McKesson along with national generic distributors and regional distributors. The generic industry is facing consolidation of customers and manufacturers, globalization and increasing quality and regulatory challenges. The company faces additional competition from manufacturers, chain drugstores, specialty distributors and packaging and health care technology companies. Meanwhile, ABSG is facing competition from the likes of McKesson, Cardinal Health, FFF Enterprises, Henry Schein and UPS Logistics. Intensifying competition will impact the company’s business.
Over the past 60 days, the Zacks Consensus Estimate for the company’s fiscal 2020 earnings has declined 5.3% to $7.29.
The Zacks Consensus Estimate for its third-quarter fiscal 2020 revenues is pegged at $44.43 billion, suggesting a 1.8% fall from the year-ago reported number.
Some better-ranked stocks from the broader medical space are Aphria APHA, DexCom DXCM and HMS Holdings HMSY.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Aphria’s long-term earnings growth rate is estimated at 24.6%. The company presently carries a Zacks Rank #2 (Buy).
DexCom’s long-term earnings growth rate is estimated at 36.3%. The company presently carries a Zacks Rank #2.
HMS Holdings’ long-term earnings growth rate is estimated at 10%. It currently carries a Zacks Rank #2.
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