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AmerisourceBergen's PharMEDium Slows Down, Competition Rife

On Nov 17, we issued an updated research report on Chesterbrook, PA-based AmerisourceBergen Corporation ABC, one of the world’s largest pharmaceutical services companies. The company focuses on providing drug distribution and related services to reduce health care costs and improve patient outcome.

AmerisourceBergen had an unimpressive run on the bourse in the last three months, trading below the industry in terms of price performance. A glimpse at the price movement reveals that AmerisourceBergen’s shares have returned only 1.0% compared with the industry’s rally of 4.9%.

The unfavorable performance was a result of pricing pressure in the generic drug space and lackluster guidance for the full year. AmerisourceBergen expects fiscal 2018 adjusted earnings per share for fiscal 2018 in the band of $5.90-$6.15. Revenue growth for is expected in the range of 7-9%.

AmerisourceBergen expects adjusted operating expenses to increase in the range of 4-6%, while adjusted operating income growth is estimated in the band of 3-5%.

Meanwhile, operating income growth at the pharmaceutical distribution services segment is projected in the range of 3-5%.

AmerisourceBergen acquired PharMEDium Healthcare Holdings for $2.58 billion back in 2015. We believe that the temporary slowdown in PharMEDium growth will mar AmerisourceBergen's bottom line in the upcoming quarters. Notably, the company aims to boost investments to enhance PharMEDium's quality assurance (QA) and quality control (QC) systems in terms of product quality and patient safety. Although this lends the company a competitive advantage in the long haul, this might result in a bottom-line headwind in fiscal 2018.

Lackluster performance in the hepatitis C revenue segment is another concern. Recently, AmerisourceBergen witnessed a negative revenue impact from declining sales in owing to the adverse impact of the hepatitis C segment.

Cutthroat competition in the niche space is an additional concern. AmerisourceBergen operates in a highly competitive pharmaceutical distribution and related health care services market. The company’s primary competitors are national generic and regional distributors.

The generic industry is witnessing consolidation of customers and manufacturers, globalization and increasing quality along with regulatory challenges. The company also faces competition from manufacturers, chain drugstores, specialty distributors and packaging and health care technology companies.

Zacks Rank & Key Picks

AmerisourceBergen carries a Zacks Rank #3 (Hold). A few better-ranked medical stocks are PetMed Express, Inc. PETS, Align Technology, Inc. ALGN and Myriad Genetics, Inc. MYGN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has surged roughly 77.9% in the past year.

Align Technology has a long-term expected earnings growth rate of 28.9%. The stock has skyrocketed 156.3% in a year’s time.

Myriad Genetics has a long-term expected earnings growth rate of 15%. The stock has soared 82.1% in the past year.

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PetMed Express, Inc. (PETS): Free Stock Analysis Report
 
Myriad Genetics, Inc. (MYGN): Free Stock Analysis Report
 
Align Technology, Inc. (ALGN): Free Stock Analysis Report
 
AmerisourceBergen Corporation (Holding Co) (ABC): Free Stock Analysis Report
 
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