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Reasons to Retain AmerisourceBergen (ABC) in Your Portfolio
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AmerisourceBergen Corporation is well poised for growth on the back of robust U.S. Healthcare Solutions business and product launches. However, intense competition is a concern.
Shares of this currently Zacks Rank #3 (Hold) company have risen 1.6% compared with the industry’s 4.7% growth so far this year. The S&P 500 Index has increased 10.7% in the same time frame.
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. It has a market capitalization of $34.1 billion.
The company’s bottom line is anticipated to improve 8.7% over the next five years. Its earnings beat estimates in each of the trailing four quarters, the average surprise being 3.14%.
Image Source: Zacks Investment Research
What’s Driving Growth?
In fiscal 2022, ABC realigned its reporting structure under two segments — U.S. Healthcare Solutions and International Healthcare Solutions.
The first segment consists of the legacy Pharmaceutical Distribution Services (excluding Proforma), MWI Animal Health, Xcenda, Lash Group and ICS 3PL. It 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 second quarter of 2023, revenues at U.S. Healthcare Solutions totaled $56.7 billion, up 11.3% year over year. This improvement was due to higher specialty product sales and overall market growth.
However, this upside was partially offset by lower revenues from commercial COVID-19 treatments. Segmental operating income came in at $756.1 million, up 3.6% 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.
Revenues at the U.S. Healthcare Solutions segment are expected to grow 7-8% in fiscal 2023. Operating income is anticipated to increase 3-5%.
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 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 in the pharmaceutical development and commercialization journey.
In 2022, ABC collaborated with TrakCel, the leading innovator of cellular orchestration solutions, to launch an integrated technology platform. The idea was to accelerate patient access to prescribed cell and gene therapies, and provide complete visibility throughout the treatment process.
The acquisition of Alliance Healthcare strongly drove AmerisourceBergen’s International segment revenues in fiscal 2022.
Adjusted EPS for fiscal 2023 is estimated between $11.70 and $11.95, implying a 6-8% increase from the previous year’s level. ABC estimates revenue growth of 6-8% for the same time frame.
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.
The company encounters additional competition from manufacturers, chain drugstores, specialty distributors, and packaging and healthcare technology companies. Increased competition is likely to affect its business.
Estimate Trend
ABC has been witnessing a positive estimate revision trend for fiscal 2023. In the past 30 days, the Zacks Consensus Estimate for earnings has increased from $11.61 per share to $11.82.
The same for third-quarter fiscal 2023 revenues is pegged at $63.41 billion, indicating a 5.6% improvement from the year-ago quarter’s actual. The bottom-line estimate is pegged at $2.82, implying an 8.5% year-over-year improvement.
Merit Medical Systems has an estimated long-term growth rate of 11%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 20.22%.
So far this year, MMSI’s shares have risen 15.3% compared with the industry’s 8.7% growth.
West Pharmaceutical Services has an estimated long-term growth rate of 6.3%. Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 13.61%.
So far this year, WST’s shares have rallied 45.9% compared with the industry’s 8.7% growth.
Perrigo’s earnings are expected to improve 24.6% in 2023. The strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average negative surprise being 0.79%.
The company has lost 5% so far this year compared with the industry’s 0.8% decline.
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Reasons to Retain AmerisourceBergen (ABC) in Your Portfolio
AmerisourceBergen Corporation is well poised for growth on the back of robust U.S. Healthcare Solutions business and product launches. However, intense competition is a concern.
Shares of this currently Zacks Rank #3 (Hold) company have risen 1.6% compared with the industry’s 4.7% growth so far this year. The S&P 500 Index has increased 10.7% in the same time frame.
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. It has a market capitalization of $34.1 billion.
The company’s bottom line is anticipated to improve 8.7% over the next five years. Its earnings beat estimates in each of the trailing four quarters, the average surprise being 3.14%.
Image Source: Zacks Investment Research
What’s Driving Growth?
In fiscal 2022, ABC realigned its reporting structure under two segments — U.S. Healthcare Solutions and International Healthcare Solutions.
The first segment consists of the legacy Pharmaceutical Distribution Services (excluding Proforma), MWI Animal Health, Xcenda, Lash Group and ICS 3PL. It 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 second quarter of 2023, revenues at U.S. Healthcare Solutions totaled $56.7 billion, up 11.3% year over year. This improvement was due to higher specialty product sales and overall market growth.
However, this upside was partially offset by lower revenues from commercial COVID-19 treatments. Segmental operating income came in at $756.1 million, up 3.6% 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.
Revenues at the U.S. Healthcare Solutions segment are expected to grow 7-8% in fiscal 2023. Operating income is anticipated to increase 3-5%.
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 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 in the pharmaceutical development and commercialization journey.
In 2022, ABC collaborated with TrakCel, the leading innovator of cellular orchestration solutions, to launch an integrated technology platform. The idea was to accelerate patient access to prescribed cell and gene therapies, and provide complete visibility throughout the treatment process.
The acquisition of Alliance Healthcare strongly drove AmerisourceBergen’s International segment revenues in fiscal 2022.
Adjusted EPS for fiscal 2023 is estimated between $11.70 and $11.95, implying a 6-8% increase from the previous year’s level. ABC estimates revenue growth of 6-8% for the same time frame.
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.
The company encounters additional competition from manufacturers, chain drugstores, specialty distributors, and packaging and healthcare technology companies. Increased competition is likely to affect its business.
Estimate Trend
ABC has been witnessing a positive estimate revision trend for fiscal 2023. In the past 30 days, the Zacks Consensus Estimate for earnings has increased from $11.61 per share to $11.82.
The same for third-quarter fiscal 2023 revenues is pegged at $63.41 billion, indicating a 5.6% improvement from the year-ago quarter’s actual. The bottom-line estimate is pegged at $2.82, implying an 8.5% year-over-year improvement.
AmerisourceBergen Corporation Price
AmerisourceBergen Corporation price | AmerisourceBergen Corporation Quote
Stocks to Consider
Some better-ranked stocks from the broader medical space are Merit Medical Systems (MMSI - Free Report) , West Pharmaceutical Services (WST - Free Report) and Perrigo (PRGO - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merit Medical Systems has an estimated long-term growth rate of 11%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 20.22%.
So far this year, MMSI’s shares have risen 15.3% compared with the industry’s 8.7% growth.
West Pharmaceutical Services has an estimated long-term growth rate of 6.3%. Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 13.61%.
So far this year, WST’s shares have rallied 45.9% compared with the industry’s 8.7% growth.
Perrigo’s earnings are expected to improve 24.6% in 2023. The strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average negative surprise being 0.79%.
The company has lost 5% so far this year compared with the industry’s 0.8% decline.