AmerisourceBergen ABC reported strong fiscal fourth-quarter and full-year results. We are likely to marginally raise our fair value estimate to account for cash earned since our last update.

AmerisourceBergen's margins have been relatively stable, which we consider a positive result given the pressures being exerted on the pharmaceutical distribution industry by consolidating customers and suppliers. AmerisourceBergen's operating margin increased to 1.20% from 1.18% for the fourth quarter and to 1.23% from 1.18% for the year. The company exercised strict control over operating expenses (which held about flat for the year) and benefited from increased penetration of generic drugs. These benefits were partially offset by less favorable contract pricing and customer mix.

For fiscal 2010, AmerisourceBergen's management projected earnings per share between $1.82 and $1.92--implying year-over-year growth of 8%-14%--which is in line with the estimate incorporated in our model. We continue to believe drug distributors are among the companies most likely to be net beneficiaries of health reform.

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