We are maintaining our Neutral recommendation on
AmerisourceBergen Corporation ( ABC ),
which carries a Zacks #3 Rank (Hold rating) in the short-run.
AmerisourceBergen, one of the world's largest pharmaceutical
services companies reported third quarter fiscal 2012 (ended June
30, 2012) adjusted earnings of 72 cents per share, representing a
year-over-year increase of 9%. Earnings, which beat the Zacks
Consensus Estimate of 69 cents, were aided by a lower share count.
Total revenue for the third quarter slipped 1.9% to $19.8
The company narrowed its projected earnings per share range for
fiscal 2012 to $2.80-$2.84 from $2.74-$2.84. AmerisourceBergen
continues to project flat-to-modest revenue growth for fiscal 2012.
The company continues to expect operating margin to grow in the
high single-digit basis points range. Free cash flow, which
includes capital expenditures of approximately $200 million, is
expected in the range of $800- $900 million.
AmerisourceBergen's generics business continues to perform well
with the company benefiting from the rapid growth of generic
pharmaceuticals in the US market. The generic launch of
Johnson & Johnson 's ( JNJ )
Concerta in May 2011 and Pfizer's ( PFE )
Lipitor in November 2011 boosted generics business revenues. The
generics business at AmerisourceBergen should benefit from
increased generic utilization, thanks to many products going
off-patent in the next few years and an aging population.
AmerisourceBergen has been actively pursuing deals and
acquisitions to drive growth. In May 2012, the company acquired
World Courier Group, Inc. The erstwhile World Courier was a
specialty transportation and logistics provider for the
Additionally, the three year $18.5 billion supply deal inked
with Express Scripts ( ESRX )
earlier this year, effective from October 2012, is a positive for
AmerisourceBergen. AmerisourceBergen is on the lookout for more
such prudent deals which will help drive growth.
However, AmerisourceBergen operates in a highly competitive
pharmaceutical distribution market. The company's primary
competitors include Cardinal Health Inc ., ( CAH ),
McKesson Corporation ( MCK ) as
well as national generic distributors and regional distributors. We
are also concerned about AmerisourceBergen's dependence on a small
number of customers for a significant part of its revenues.
In view of these challenges, we see limited upside potential
from current levels.
AMERISOURCEBRGN (ABC): Free Stock Analysis
CARDINAL HEALTH (CAH): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
JOHNSON & JOHNS (JNJ): Free Stock Analysis
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