ABC Inks Deal with Express Scripts - Analyst Blog

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AmerisourceBergen Corporation ( ABC ) recently announced its decision to supply Express Scripts Holding Company ( ESRX ) with pharmaceuticals worth $18.5 billion annually. The companies inked a three-year supply deal, which will take effect from October 1, 2012.

We note that Express Scripts has decided not to renew its pharmaceutical distribution agreement with Cardinal Health ( CAH ), one of AmerisourceBergen's competitors, following its expiry on September 30, 2012. The deal contributed $9 billion to Cardinal Health's annual revenues.

The decision follows Express Scripts' purchase of Medco Health Solutions in April 2012. The erstwhile Medco Health was the largest customer of AmerisourceBergen, one of the world's largest pharmaceutical services companies.

Management at AmerisourceBergen stated that the supply deal is expected to account for approximately 23% and 3% of its top and bottom lines, respectively. However, the deal is not expected to impact AmerisourceBergen's projections for fiscal 2012 (ending September 30) and 2013 disclosed on July 26 while reporting its third quarter fiscal 2012 financial results.

AmerisourceBergen expects to end fiscal 2012 with earnings in the range of $2.80-$2.84 per share on flat-to-modest revenue growth. The company expects operating margin to grow in the high single-digit basis points range. Free cash flow, including capital expenditures of approximately $200 million, is expected in the range of $800- $900 million in fiscal 2012.

The company also provided preliminary expectations for fiscal 2013 while releasing the earnings results. AmerisourceBergen expects its AmerisourceBergen Drug Corporation and AmerisourceBergen Specialty Group units to drive growth in fiscal 2013 aided by generic launches and recent acquisitions. The company anticipates high single digit to low double digit earnings growth in fiscal 2013.

Our Recommendation

We currently have a Neutral recommendation on AmerisourceBergen. The stock carries a Zacks #3 Rank (Hold) in the short run. We have a similar stance on Express Scripts. The Express Scripts contract has removed an overhang for AmerisourceBergen shares.


 
AMERISOURCEBRGN (ABC): Free Stock Analysis Report
 
CARDINAL HEALTH (CAH): Free Stock Analysis Report
 
EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ABC , CAH , ESRX

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