AmerisourceBergen Corporation ABC is a leading pharmaceutical services provider that distributes drugs and provides related services to reduce healthcare expenses and improve patient outcomes. The company is poised for growth due to strong U.S. Healthcare Solutions business and recent product launches. However, intense competition is a concern.
Although the shares of this company currently have a Zacks Rank #3 (Hold), they have risen 1.6% this year, compared with the industry’s growth of 4.7%. In contrast, the S&P 500 Index grew 10.7% in the same time period.
AmerisourceBergen has a market capitalization of $34.1 billion. The company’s earnings are estimated to grow 8.7% in the next five years. The company has beaten earnings estimates in each of the trailing four quarters, with an average surprise of 3.14%.
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What Is Driving Growth?
In fiscal year 2022, ABC divided its reporting structure into two segments: U.S. Healthcare Solutions and International Healthcare Solutions.
The first segment is made up of Pharmaceutical Distribution Services (excluding Proforma), Lash Group, MWI Animal Health, ICS 3PL, and Xcenda. This segment benefits from a growing customer base and increasing volume.
In the coming quarters, this segment is expected to benefit from strong organic growth in the U.S. pharmaceutical market, improved patient care access, favorable economic conditions, and population demographics.
In the fiscal second quarter of 2023, the U.S. Healthcare Solutions segment generated revenues of $56.7 billion, an 11.3% increase from the prior year. The increase resulted from overall market growth and higher sales of specialty products.
However, lower revenues from commercial COVID-19 treatments partially offset this growth. Segmental operating income rose 3.6% to $756.1 million due to higher gross profit, which included fees earned from distribution of government-owned COVID-19 treatments and a gross profit on sales from specialty physician practices.
The U.S. Healthcare Solutions segment revenues are expected to grow 7-8% in the fiscal year 2023, with operating income set to increase 3-5%.
The strategic acquisition of PharmaLex, a top-tier specialized services provider for the life sciences industry, will expand AmerisourceBergen’s global portfolio of solutions supporting its partners in the pharmaceutical development and commercialization process. PharmaLex is based in Germany and has a significant presence in the United States and other parts of the world.
In partnership with TrakCel, a cellular orchestration solutions innovator, ABC launched a comprehensive technology platform in 2022 to fast-track patient access to prescribed cell and gene therapies and provide complete visibility during treatment.
The acquisition of Alliance Healthcare strongly contributed to AmerisourceBergen’s International segment revenues in fiscal year 2022.
ABC estimates an adjusted EPS of $11.70 to $11.95 for fiscal year 2023, a 6-8% increase from the previous year. The company also anticipates 6-8% revenue growth during the same period.
What Is Harming the Stock?
AmerisourceBergen operates in a highly competitive market for pharmaceutical distribution and associated healthcare services, facing consolidation of customers and manufacturers, global competitors, and regulatory issues.
ABC also deals with rivals such as healthcare technology companies, packaging firms, specialty distributors, and chain drugstores. As a result, increased competition could impact the company adversely.
Over the last 30 days, ABC has seen a positive estimate revision trend for fiscal year 2023. In that time, the Zacks Consensus Estimate for earnings has increased from $11.61 per share to $11.82.
The third-quarter fiscal year 2023 revenue estimate is $63.41 billion, reflecting growth of 5.6% from the actual year-ago quarter figure. The bottom-line estimate is $2.82, which represents an