Stock Strategist Industry Reports

Lowering Our Pharma Distributor Moat Ratings and Valuations

Soo Romanoff

We have reassessed the pharmaceutical distributor segment in light of the evolving competitive and regulatory environment. On the basis of the continued decline of pharmaceutical spending growth and external shock threats, we have lowered our economic moat ratings for  AmerisourceBergen (ABC),  Cardinal Health (CAH), and  McKesson (MCK) to narrow from wide with a negative trend. We also reduced our fair value estimates to $86 per share from $106 for AmerisourceBergen, to $55 per share from $82 for Cardinal, and to $130 per share from $210 for McKesson.

The role of pharmaceutical distributor continues to evolve in an increasingly competitive and highly regulated environment. Scale and regulatory requirements have provided insulation to maintain share and generate market returns, but competitive pressures continue to build with declining reimbursement, healthcare consolidation, and decline in overall pharmaceutical spending growth.

Soo Romanoff does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.