AmerisourceBergen Corporation ABC, one of the world’s largest pharmaceutical services companies with focus on drug distribution and related services, is set to report second-quarter fiscal 2015 results on Apr 30, 2015.
Last quarter, AmerisourceBergen reported an 18.8% positive surprise. The company’s track record has been quite impressive as it has delivered positive earnings surprises in all of the past four quarters with an average beat of 9.8%.
Factors Influencing This Quarter
Drug pricing trends remain favorable and growth in fiscal 2015 is expected to be driven by new brand drugs especially for hepatitis C, overall script and volume growth from an improving U.S. economy along with positive contributions from health care reforms, successful launches of brand products and population demographics.
AmerisourceBergen entered into a strategic agreement with Walgreen Boots Alliance WBA in fiscal 2013. The agreement included a 10-year pharmaceutical distribution contract with Walgreen and access to generic drugs and related pharmaceutical products through the Walgreen Boots Alliance Development joint venture.
Meanwhile, AmerisourceBergen has been actively pursuing acquisitions to strengthen its core areas. The recent MWI Veterinary acquisition will diversify the company’s existing pharmaceutical distribution & services businesses into the attractive animal health market, which holds huge potential at the moment. MWI Veterinary Supply sells pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, supplies, pet food and nutritional products.
However, reimbursement issues for community oncologists remain a concern. Moreover, operating margins will be under pressure as the rapidly growing Hepatitis C products contribute to gross profit at a lower margin. Moreover, although generic Nexium has been approved by the FDA, its launch timing is uncertain, thereby casting a shadow of uncertainty on the potential benefits of the launch of generic Nexium.
What Our Model Indicates
Our proven model does not conclusively show that AmerisourceBergen is likely to beat earnings this quarter. That's because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #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: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at 0.00%. This is because both the Most Accurate Estimate and Zacks Consensus Estimate currently stand at $1.18.
Zacks Rank: AmerisourceBergen’s Zacks Rank #3 when combined with a 0.00% ESP makes a surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks That Warrant a Look
Here are some health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Exelixis, Inc. EXEL has an Earnings ESP of +4.35% and a Zacks Rank #2. The company is scheduled to release results on Apr 30.
Actavis plc ACT has an Earnings ESP of +1.04% and a Zacks Rank #2. The company is scheduled to release results on May 11.
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