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Reasons to Retain AmerisourceBergen (ABC) in Your Portfolio

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AmerisourceBergen Corporation ABC is well-poised for growth on the back of its robust U.S. Healthcare Solutions business and product launches. Intense competition remains a concern.

Shares of this currently Zacks Rank #3 (Hold) player have gained 22.3% against the industry’s decline of 10.5% in a year’s time. The S&P 500 Index has fallen 11.3% in the same time frame.

AmerisourceBergen, with a market capitalization of $29.6 billion, is one of the world’s largest pharmaceutical services companies, focused on providing drug distribution and related services to reduce health care costs and improve patient outcomes. ABC anticipates earnings to improve 8.1% over the next five years. It beat on earnings in three of the trailing four quarters and missed the mark once, the average surprise being 4.01%.

What’s Driving Growth?

It is worth mentioning that AmerisourceBergen made a strategic evaluation of its reporting structure to represent its expanded international presence following the June 2021 buyout of Alliance Healthcare. As a result, starting the first quarter of fiscal 2022, ABC realigned its reporting structure under two reportable segments, namely U.S. Healthcare Solutions and International Healthcare Solutions.

Per the segment realignment, U.S. Healthcare Solutions consists of the legacy Pharmaceutical Distribution Services reportable segment (excluding Profarma), 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 quarters to come.

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In second-quarter fiscal 2022, revenues at this segment totaled $50.94 billion, reflecting a rise of 5.8% on a year-over-year basis on the back of higher specialty product sales and overall market growth. Lower revenues from commercial COVID-19 treatments partially offset this upside. Segmental operating income was $729.5 million, up 11.4% 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.

In April 2022, AmerisourceBergen introduced AB Health Ventures, a dedicated corporate venture capital fund, focused on investing in and collaborating with the emerging healthcare startup companies involved in transforming healthcare for people and animals worldwide. This venture capital fund will build on AmerisourceBergen’s continued commitment to offering innovation to its customers. It is worth mentioning that AB Health Ventures is a wholly-owned subsidiary of AmerisourceBergen that will utilize its depth of expertise, global presence and solid relationships with stakeholders throughout the pharmaceutical supply chain to boost value for entrepreneurs who are searching for partners to aid business growth.

In January 2022, ABC collaborated with TrakCel, the leading innovator of cellular orchestration solutions, to launch an integrated technology platform to accelerate patient access to prescribed cell and gene therapies and provide complete visibility throughout the treatment process.

What’s Hurting the Stock?

AmerisourceBergen operates in a highly competitive pharmaceutical distribution and related health care services market. The generic industry is facing consolidation of customers and manufacturers, globalization and regulatory challenges. ABC encounters additional competition from manufacturers, chain drugstores, specialty distributors, and packaging and health care technology companies. Increased competition will affect its business.

Estimate Trend

AmerisourceBergen has been witnessing an upward estimate revision trend for fiscal 2022. In the past 60 days, the Zacks Consensus Estimate for earnings has moved 0.8% north to $10.95.

The Zacks Consensus Estimate for third-quarter fiscal 2022 revenues is pegged at $58.91 billion, suggesting growth of 10.31% from the year-ago fiscal quarter’s reported number.

Zacks Rank & Stocks to Consider

Currently, AmerisourceBergen carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Patterson Companies, Inc. PDCO and ShockWave Medical, Inc. SWAV.

AMN Healthcare, flaunting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 1.1%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 15.6%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has gained 13.8% against the industry’s 32.7% fall in the past year.

Patterson Companies, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 9.6%. PDCO’s earnings surpassed estimates in all the trailing four quarters, the average being 16.5%.

Patterson Companies has lost 1.8% compared with the industry’s 10.5% fall over the past year.

ShockWave Medical, sporting a Zacks Rank of 1 at present, has an estimated growth rate of 44.9% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average being 189.9%.

ShockWave Medical has gained 7.9% against the industry’s 24.4% fall over the past year.


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