) recently announced its decision to supply
Express Scripts Holding Company
) with pharmaceuticals worth $18.5 billion annually. The companies
inked a three-year supply deal, which will take effect from October
We note that Express Scripts has decided not to renew its
pharmaceutical distribution agreement with
), 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.
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
CARDINAL HEALTH (CAH): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
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