Near-Term Issues Don't Affect Amerisource's Valuation
The company's still one of the most powerful players in the pharmaceutical supply chain.
AmerisourceBergen's (ABC) fiscal second-quarter results largely matched our expectations. However, the firm gave guidance for the rest of 2016 and preliminarily for 2017 that reflects a lower profit environment than our initial expectations. After factoring these near-term issues into our discounted cash flow model, the change in fair value was immaterial and we are reiterating our $101 fair value estimate for the drug wholesaler. We believe that near-term profit headwinds will be offset as certain customer contracts ramp up over the next few years and the firm is able to leverage its current infrastructure improvements. This will be especially key if Amerisource can take advantage of the greater gross dollars per product that are derived from specialty pharmaceuticals. Additionally, we believe widespread generic price inflation should not play a role in the long-term valuation of any drug distributor. From our perspective, generic price changes will remain either close to 0% or deflationary.
The headwinds AmerisourceBergen had to contend with over the quarter were largely split into two buckets.
Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.