AmerisourceBergen (ABC) Beats, Raises Outlook Again

AmerisourceBergen Corporation’s (ABC) third quarter fiscal 2010 earnings (excluding a gain of 5 cents from special items) of 52 cents per share, surpassed the Zacks Consensus Estimate by 3 cents. Adjusted earnings increased approximately 24% from the year-ago period. The strong performance in the reported quarter was driven by strong sales of generic medicines and continued expense management.

Total revenues for the reported quarter climbed 6.6% year-over-year to $19.6 billion. Revenues for the quarter surpassed the Zacks Consensus Revenue Estimate of $19.0 billion. The strong showing was attributable to an 8% growth in AmerisourceBergen Drug Corporation revenues and a 3% rise in Specialty Group revenues.

The revenue growth at the AmerisourceBergen Drug Corporation segment was aided by market growth driven by its biggest customers. Meanwhile, generic revenues remained strong during the quarter.

Gross profit (excluding a $19.1 million gain from an antitrust litigation settlement) for the third quarter was $569.3 million, which reflected a 9.6% increase over the year-ago period. The improvement was driven by increased revenue coupled with the impact of generic pharmaceuticals.

Revenue growth, increased gross profit and expense management helped boost operating income by 32% to $281.9 million. However, 11% of the year-over-year increase was attributable to special items.

Outlook Raised

Following the strong third-quarter performance, AmerisourceBergen increased its guidance for fiscal 2010 for the third time this year. The company had earlier raised its guidance following strong first quarter and second quarter results.

AmerisourceBergen now expects fiscal 2010 earnings in the range of $2.16 – $2.20, up 28% to 30% from fiscal 2009. The company was previously expecting earnings per share in the range of $2.01 to $2.10. The company, which provides drug distribution and related services designed to reduce healthcare costs and improve patient outcomes, expects earnings to range between 44 cents and 48 cents per share in the fourth quarter of fiscal 2010.

The projection for revenue growth for 2010 has also been raised to 8 – 9% as opposed to the previous guidance of 7 – 8%. AmerisourceBergen continues to project fiscal 2010 free cash flow in the range of $525 million – $600 million.

AmerisourceBergen intends to spend about $450 million in share repurchases in fiscal 2010 as opposed to the earlier projection of $350 million. During fiscal 2009, AmerisourceBergen had spent $450.4 million in share repurchases.

Our Take & Recommendation

We believe that AmerisourceBergen should continue to benefit from growth in the pharmaceutical industry, which is driven by factors like an aging population, increased use of generics and introduction of new treatments.

The company is well-positioned for growth given the strong performance of its generics and specialty pharma business. Furthermore, AmerisourceBergen boasts a robust plasma and vaccine business with strong revenues expected to flow from it in the coming quarters, as well.

Consequently, we believe the current risk/reward profile for AmerisourceBergen is tilted towards reward. This justifies not only the short-term Zacks #2 Rank (Buy) on the stock but also our long-term Outperform stance on the stock. We believe that the current price represents an attractive entry point for investors.

AMERISOURCEBRGN (ABC): Free Stock Analysis Report

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