Reasons to Retain AmerisourceBergen (ABC) in Your Portfolio
AmerisourceBergen Corporation ABC is well-poised for growth on the back of its robust U.S. Healthcare Solutions business and product launches. Intense competition, though, remains a concern.
Shares of this currently Zacks Rank #3 (Hold) player have gained 12% compared with the industry’s increase of 4.7% in the past six months. The S&P 500 Index has increased 0.7% in the same time frame.
With a market capitalization of $33.26 billion, AmerisourceBergen is one of the world’s largest pharmaceutical services companies, focused on providing drug distribution and related services to reduce healthcare costs and improve patient outcomes. The company’s earnings are anticipated to improve 8.6% over the next five years. It beat earnings estimates in three of the trailing four quarters and missed the mark once, the average surprise being 2.51%.
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What’s Driving Growth?
AmerisourceBergen made a strategic evaluation of its reporting structure to represent its expanded international presence, following the buyout of Alliance Healthcare in 2021. As a result, ABC realigned its reporting structure under two reportable segments, namely U.S. Healthcare Solutions and International Healthcare Solutions in fiscal 2022.
Following the segment realignment, U.S. Healthcare Solutions consists of the legacy Pharmaceutical Distribution Services reportable segment (excluding Proforma), MWI Animal Health, Xcenda, Lash Group and ICS 3PL. The segment benefits from increasing volume and an expanding customer base.
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 favor the segment in the coming quarters.
In the fiscal fourth quarter of 2022, revenues at this segment totaled $54.8 billion, indicating a rise of 4.7% on a year-over-year basis on the back of higher specialty product sales and overall market growth. However, lower revenues from commercial COVID-19 treatments partially offset this upside. Segmental operating income was $578.4 million, up 14% year over year.
Higher gross profit (which included fees earned from the distribution of government-owned COVID-19 treatments and a gross profit on sales from specialty physician practices) contributed to the upside. With respect to the U.S. Healthcare Solutions segment, revenues are expected to grow 6-8%. Operating income at the segment is anticipated to grow 2-4%.
In September 2022, AmerisourceBergen signed a definitive agreement to acquire Germany-based PharmaLex Holding GmbH for €1.28 billion ($1.3 billion) in cash. PharmaLex is a leading provider of specialized services for the life sciences industry, owned by funds advised by AUCTUS Capital Partners AG. It has a global reach, with a significant footprint in Europe and the United States, and a growing presence in other parts of the world. The acquisition of this Germany-based company will enhance ABC’s global portfolio of solutions to support manufacturer partners across the pharmaceutical development and commercialization journey.
Last year, ABC collaborated with TrakCel, the leading innovator of cellular orchestration solutions, to launch an integrated technology platform for accelerating patient access to prescribed cell and gene therapies and providing complete visibility throughout the treatment process.
The acquisition of Alliance Healthcare strongly drove AmerisourceBergen’s international segment revenues in fiscal 2022.
Adjusted EPS is estimated to be in the range of $11.30-$11.60 for fiscal 2023, implying 2-5% growth from the fiscal 2022 level. ABC estimates revenue growth of 5-7% for fiscal 2023.
What’s Hurting the Stock?
AmerisourceBergen operates in a highly competitive pharmaceutical distribution and related healthcare services market. The generic industry is facing consolidation of customers and manufacturers, global competitors and regulatory challenges. ABC encounters additional competition from manufacturers, chain drugstores, specialty distributors, and packaging and healthcare technology companies. Increased competition will affect its business.
Estimate Trend
AmerisourceBergen has been witnessing an upward estimate revision trend for fiscal 2023. In the past 30 days, the Zacks Consensus Estimate for earnings has moved north to $11.50 per share from $11.48.
The Zacks Consensus Estimate for first-quarter fiscal 2023 revenues is pegged at $62.24 billion, suggesting growth of 4.4% from the year-ago fiscal quarter’s reported number. The earnings estimate of $2.59 per share for the same time-period implies an increase of 0.4% year over year.
AmerisourceBergen Corporation Price
AmerisourceBergen Corporation price | AmerisourceBergen Corporation Quote
Stocks to Consider
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, ShockWave Medical, Inc. SWAV and McKesson Corporation MCK.
ShockWave Medical, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 27.7% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average beat being 146.10%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
ShockWave Medical has lost 12% against the industry’s 2.8% increase in the past six months.
AMN Healthcare, sporting a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.96%.
AMN Healthcare has lost 14.4% compared with the industry’s 5.6% decline in the past six months.
McKesson, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 10.1%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average beat being 4.79%.
McKesson has gained 12% compared with the industry’s 4.7% increase over the past six months.
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AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report
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