Here's Why You Should Invest in AmerisourceBergen (ABC) Now
AmerisourceBergen Corporation ABC is well poised for growth on the back of its robust pharmaceutical distribution business and new product offerings.
The stock has gained 12.9%, against the industry’s growth of 10.9% in a year’s time. Meanwhile, the S&P 500 Index rallied 16.1% in the same time frame.
AmerisourceBergen — with a market capitalization of $19.97 billion — is one of the world’s largest pharmaceutical services companies, which is focused on providing drug distribution and related services to reduce health care costs and improve patient outcomes. It anticipates earnings to improve 7.5% over the next five years. Further, the company beat estimates in each of the trailing four quarters, the average surprise being 7.4%.
The stock also has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), are better picks than most.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #2.
Pharmaceutical Distribution serves healthcare providers in the pharmaceutical supply channel. AmerisourceBergen has been witnessing strong revenue growth in this unit in the last couple of quarters. Increasing volume and an expanding customer base have been driving the segment. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to medical care, improved economic conditions and population demographics are likely to continue benefiting the segment in the quarters to come.
In fiscal third-quarter 2020, revenues at this segment were $43.58 billion, reflecting an improvement of 0.1% on a year-over-year basis. Owing to the onset of the COVID-19 pandemic, many of the company’s customers ramped up their purchases in first-quarter 2020 that led to fewer purchases in the second quarter. This led to marginal improvement in the segment’s revenues. Segmental operating income was $426.6 million, up 3.6% year over year. Increase in gross profit and decrease in operating expenses drove the upside.
AmerisourceBergen is expected to benefit from generics growth in the long run. The company is well-positioned to help ensure products get to market as efficiently as possible. During the fiscal third quarter, AmerisourceBergen introduced two new offerings at its MWI Animal Health business, which have been developed to help veterinarians manage the financial impact of COVID-19.
The new offerings enable practices to offer flexible financing solutions for clients, thereby lowering the financial burden of both routine and emergency pet care. The offerings also help practices in achieving sustained revenue, long-term client engagement and improved patient outcomes.
Which Way are Estimates Headed?
For fiscal 2020, the Zacks Consensus Estimate for revenues is pegged at $188.8 billion. The same for adjusted earnings per share stands at $7.87, suggesting growth of 11%.
Other Stocks to Consider
Some other top-ranked stocks from the broader medical space include DaVita Inc. DVA, Boston Scientific Corporation BSX and Thermo Fisher Scientific Inc. TMO. While Boston Scientific carries a Zacks Rank #2, both DaVita and Thermo Fisher sport a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita has a projected long-term earnings growth rate of 11.9%.
Boston Scientific has an estimated long-term earnings growth rate of 10%.
Thermo Fisher has a projected long-term earnings growth rate of 15.5%.
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