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AmerisourceBergen (ABC) Q3 Earnings: Will It Disappoint?

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AmerisourceBergen Corp. (ABC - Free Report) is set to report third-quarter fiscal 2017 results on Aug 3, before the opening bell.

AmerisourceBergen’s track record has been quite impressive, with the company comfortably beating estimates in each of the trailing four quarters. In the last reported quarter, it delivered a positive earnings surprise of 3.51%, bringing the four-quarter average to 7.12%. Let’s see how things are shaping up prior to this release.

Factors at Play

AmerisourceBergen’s pharmaceutical distribution segment continues to face headwinds in the form of contract renewals and lower generic inflation. The AmerisourceBergen Drug Corporation (“ABDC”) business is also being 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 rising gradually. These factors, combined with an anticipated shift in product mix toward lower-margin and higher-priced specialty and branded drugs and lack of generic inflation will adversely impact bottom line.

However, the company renewed its relationship with the largest health systems customer and has been making persistent efforts to address the headwinds in the ABDC segment. This can boost the top line to some extent in the fiscal third quarter.

The company’s estimate revision trend is mixed. For the current quarter, AmerisourceBergen saw one upward and downward estimate movement over the last one month. Current quarter estimate for earnings per share is pegged at $1.37.

Also, the company is apprehensive about its earnings and revenue growth expectations for fiscal 2017 due to the uncertainty surrounding drug pricing trends. The company currently expects revenue growth in the range of 5.5% to 6.5%. The company expects adjusted diluted earnings per share in the range of $5.77 to $5.92. Meanwhile, AmerisourceBergen expects brand drug inflation in the range of 7% to 9%.

Earnings Whispers

Our quantitative model doesn’t point to an earnings beat 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) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for AmerisourceBergen is -0.73%. This is because the Most Accurate estimate is $1.36 and the Zacks Consensus Estimate is pegged at $1.37. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AmerisourceBergen carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our proven model shows that they have the right combination of elements to post an earnings beat this quarter:  

Becton, Dickinson and Company (BDX - Free Report) has an Earnings ESP of +0.41% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology, Inc. (ALGN - Free Report) has an Earnings ESP of +1.37% and carries a Zacks Rank #2.

Thermo Fisher Scientific Inc. (TMO - Free Report) has an Earnings ESP of +0.44% and holds a Zacks Rank #2.

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