AmerisourceBergen CorpABC

Morningstar Rating

Stock Research and Analysis

by Morningstar Equity Analysts

Pharmaceutical distribution in the United States is dominated by three firms: Cardinal Health CAH, McKesson MCK, and AmerisourceBergen. AmerisourceBergen is the purest play on this narrow-moat industry, and we find its diversified customer base and Read more

Bulls Say

AmerisourceBergen has less customer concentration than its competitors, leaving it less vulnerable to customer attrition and margin pressure.

AmerisourceBergen is the leading distributor of specialty drugs to oncologists, an attractive niche market with stellar growth potential.

With only three dominant competitors, drug distribution is an oligopoly with rational pricing. Mild switching costs help market shares stay relatively constant over time.

AmerisourceBergen earns higher margins on generic drugs. We are amid an unprecedented wave of patent expirations on blockbuster brand-name drugs.

AmerisourceBergen recently signed a new agreement with Express Scripts, extending and expanding its relationship with its largest customer. Read more

Bears Say

Further consolidation in the retail drugstore industry could cause declining volume and margin contraction for AmerisourceBergen.

AmerisourceBergen's new contract with Express Scripts carries margins around 50% lower than its old arrangement with Medco, demonstrating the bargaining power of large customers.

Generic drugs are most profitable for distributors in the first months after launch. As newer generics mature, it could create a margin headwind for AmerisourceBergen.

AmerisourceBergen's razor-thin operating margins mean that small fluctuations in revenue or costs can have a disproportionate impact on earnings.

Drugmaker Pfizer recently announced it is moving to a direct distribution model in Australia. A similar move in the U.S. could have a devastating impact on wholesalers. Read more

Management

We are fans of AmerisourceBergen's operational focus and disciplined deployment of capital and view the company's stewardship as exemplary. CEO Steven Collis, who recently took over from R. David Yost, leads AmerisourceBergen. Yost retired after 37 years Read more

Profile

AmerisourceBergen is one of three national pharmaceutical distributors. The company's activities include procurement, inventory management, reimbursement consulting, physician Read more