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Here's Why You Should Retain AmerisourceBergen (ABC) Stock

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AmerisourceBergen Corporation (ABC - Free Report) is well-poised for growth on the back of its robust pharmaceutical distribution business and new product offerings. Intense competition remains a concern.

The stock has gained 23.2%, compared with the industry’s growth of 9.2% on a year-to-date basis. Meanwhile, the S&P 500 Index rallied 11.7% in the same time frame.

AmerisourceBergen — with a market capitalization of $24.67 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 11.4% over the next five years. Further, the company beat estimates in each of the trailing four quarters, the average surprise being 8.9%.

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, 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 first-quarter 2021, revenues segment totaled $50.49 billion, reflecting an increase of 9.7% on a year-over-year basis on the back of higher volume related to growth of some of its largest customers and continued strength in specialty product sales. Segmental operating income was $496.1 million, up 26.6% year over year. Increase in gross profit resulting from revenue growth contributed to the upside.

AmerisourceBergen is expected to gain from generics growth in the long run. The company is well-positioned to help ensure products get to market as efficiently as possible. During third-quarter fiscal 2020, AmerisourceBergen introduced two new offerings at its MWI Animal Health business, which have been developed to help veterinarians manage the financial impact of COVID-19.

The new offerings enable practices to offer flexible financing solutions for clients, thereby lowering the financial burden of both routine and emergency pet care. The offerings also help practices in achieving sustained revenue growth, long-term client engagement and improved patient outcomes.

Which Way are Estimates Headed?

For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $204.77 billion, indicating an improvement of 7.8% from the prior year. The same for adjusted earnings per share stands at $8.54, suggesting growth of 8.1% from the year earlier.

Stocks to Consider

Some better-ranked stocks from the broader medical space include Align Technology, Inc. (ALGN - Free Report) , DENTSPLY SIRONA Inc. (XRAY - Free Report) and Cantel Medical Corp. , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology’s long-term earnings growth rate is expected at 20.8%.

DENTSPLY SIRONA’s long-term earnings growth rate is estimated at 20%.

Cantel Medical’s long-term earnings growth rate is estimated at 19%.

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