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AmerisourceBergen (ABC) Q1 Earnings: Will It Disappoint?

AmerisourceBergen Corp.ABC is set to report first-quarter fiscal 2017 results on Jan 31, before the opening bell.

AmerisourceBergen's track record has been quite impressive, with the company comfortably beating estimates in each of the four trailing quarters. In the last reported quarter, it recorded a positive earnings surprise of 6.56%, bringing the four-quarter average to 5.64%. Over the past three months, AmerisourceBergen returned almost 5.59%, which is higher than the Zacks categorized Medical/Dental Supplies sub-industry's gain of roughly 1.73%. Also, AmerisourceBergen has a decent earnings surprise history, as evident from the chart below.

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 the 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 an extent in the fiscal first quarter.

Also AmerisourceBergen has lowered its earnings and revenue growth expectations for fiscal 2017 due to the uncertainty surrounding drug pricing trends at present. In the first quarter of fiscal 2017, the bottom line is expected to register a year-over-year decline of a few cents.

Earnings Whispers

Our quantitative model doesn't point to an earnings beat either 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 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.22. 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 #2 which increases the predictive power of ESP. However, the company's ESP of 0.00% makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

Cempra Inc. CEMP has an Earnings ESP of +15.79% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Molina Healthcare Inc. MOH has an Earnings ESP of +5.33% and a Zacks Rank #2.

Universal Health Services, Inc. UHS has an Earnings ESP of +4.97% and a Zacks Rank #2.

Zacks' Top 10 Stocks for 2017

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Molina Healthcare Inc (MOH): Free Stock Analysis Report

Universal Health Services, Inc. (UHS): Free Stock Analysis Report

AmerisourceBergen Corporation (Holding Co) (ABC): Free Stock Analysis Report

Cempra, Inc. (CEMP): 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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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