AmerisourceBergen Corporation is set to report third-quarter fiscal 2016 results on Aug 2, before the opening bell.

AmerisourceBergen’s track record has been quite impressive, with the company comfortably beating estimates in three of the four trailing quarters. In the last reported quarter, it recorded a positive earnings surprise of 5.66%, bringing the four-quarter average to 2.69%.

Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Concurrent with its fiscal second-quarter results, AmerisourceBergen had narrowed its guidance. Its pharmaceutical distribution segment continues to experience headwinds in the form of contract renewals and lower generic inflation. The AmerisourceBergen Drug Corporation (ABDC) business was also hurt by several factors, including accelerating deflation of generic drugs and lower contribution from generic launches. Although generic inflation has been nominal, the rate of deflation is on a gradual uptrend, now hovering at levels above the company’s expectations. These factors, combined with the anticipated impact of a shift in product mix toward lower-margin and higher-priced specialty and branded drugs, as well as the lack of generic inflation will adversely impact the bottom line. Moreover, the company’s efforts to increase sales of PRxO generics and revenues from independent retail segment are progressing slower than projected. Keeping these factors in consideration, the company lowered its earnings guidance to the range of $5.44–$5.54 from its previous projection of $5.73–$5.83.

Headwinds in the form of the Kaiser and TPA contract renewals could also impact results. On the other hand, AmerisourceBergen expects revenues to grow around 8% in fiscal 2016.  Market growth in the U.S. is being driven by new brand product introductions, both in more traditional therapies and innovative specialty products.

The company recently extended the term of its 10-year pharmaceutical distribution agreement with Walgreens Boot Alliance (WBA Quick QuoteWBA - Free Report) for three years. The contract will now expire in 2026. The company also extended its global sourcing arrangement with Walgreens Boots Alliance Development GmbH by three years, which will expire in 2026 as well.

What Our Model Indicates

Our proven model does not conclusively show that AmerisourceBergen is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. Unfortunately, that is not the case, as you will see below.

Zacks ESP: The Earnings ESP for AmerisourceBergen is 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.26.

Zacks Rank: AmerisourceBergen carries a favorable Zacks Rank #2, which when combined with a 0.00% ESP, makes a surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here is a company that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Bristol-Myers Squibb Co. (BMY Quick QuoteBMY - Free Report) has an Earnings ESP of +1.49% and a Zacks Rank #1. The company is scheduled to report second-quarter results on Jul 28.

Ironwood Pharmaceuticals (IRWD Quick QuoteIRWD - Free Report) has an Earnings ESP of 13.3% and a Zacks Rank #2. The company is expected to report earnings on Aug 4.

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