Intrinsic value of AmerisourceBergen - ABC

Previous Close

$80.03

  Intrinsic Value

$273.72

stock screener

  Rating & Target

str. buy

+242%

  Value-price divergence*

-69%

Previous close

$80.03

 
Intrinsic value

$273.72

 
Up/down potential

+242%

 
Rating

str. buy

 
Value-price divergence*

-69%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ABC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 17.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.01
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  146,850
  152,871
  159,276
  166,079
  173,293
  180,934
  189,020
  197,567
  206,594
  216,124
  226,176
  236,775
  247,945
  259,713
  272,104
  285,149
  298,878
  313,323
  328,519
  344,502
  361,308
  378,978
  397,554
  417,079
  437,600
  459,166
  481,828
  505,639
  530,656
  556,939
  584,550
Variable operating expenses, $m
 
  136,948
  142,661
  148,728
  155,163
  161,978
  169,190
  176,813
  184,865
  193,364
  202,330
  211,185
  221,147
  231,643
  242,695
  254,330
  266,575
  279,459
  293,013
  307,268
  322,258
  338,018
  354,586
  372,001
  390,304
  409,539
  429,752
  450,989
  473,303
  496,745
  521,371
Fixed operating expenses, $m
 
  14,466
  14,827
  15,198
  15,578
  15,968
  16,367
  16,776
  17,195
  17,625
  18,066
  18,517
  18,980
  19,455
  19,941
  20,440
  20,951
  21,475
  22,011
  22,562
  23,126
  23,704
  24,297
  24,904
  25,527
  26,165
  26,819
  27,489
  28,177
  28,881
  29,603
Total operating expenses, $m
  145,324
  151,414
  157,488
  163,926
  170,741
  177,946
  185,557
  193,589
  202,060
  210,989
  220,396
  229,702
  240,127
  251,098
  262,636
  274,770
  287,526
  300,934
  315,024
  329,830
  345,384
  361,722
  378,883
  396,905
  415,831
  435,704
  456,571
  478,478
  501,480
  525,626
  550,974
Operating income, $m
  1,526
  1,457
  1,788
  2,153
  2,552
  2,989
  3,463
  3,978
  4,534
  5,134
  5,780
  7,073
  7,818
  8,615
  9,468
  10,379
  11,352
  12,390
  13,495
  14,672
  15,924
  17,256
  18,671
  20,174
  21,769
  23,462
  25,257
  27,160
  29,177
  31,313
  33,575
EBITDA, $m
  1,919
  2,232
  2,570
  2,942
  3,350
  3,795
  4,279
  4,803
  5,370
  5,981
  6,638
  7,344
  8,102
  8,912
  9,779
  10,706
  11,694
  12,748
  13,871
  15,067
  16,338
  17,690
  19,127
  20,652
  22,271
  23,988
  25,809
  27,739
  29,785
  31,951
  34,245
Interest expense (income), $m
  124
  135
  123
  168
  216
  266
  320
  376
  436
  499
  566
  636
  710
  789
  871
  958
  1,049
  1,145
  1,246
  1,353
  1,464
  1,582
  1,706
  1,836
  1,972
  2,116
  2,267
  2,425
  2,592
  2,767
  2,951
Earnings before tax, $m
  1,391
  1,322
  1,665
  1,984
  2,337
  2,723
  3,144
  3,602
  4,098
  4,635
  5,214
  6,437
  7,107
  7,826
  8,597
  9,421
  10,303
  11,244
  12,249
  13,320
  14,460
  15,674
  16,966
  18,338
  19,797
  21,346
  22,990
  24,735
  26,585
  28,546
  30,624
Tax expense, $m
  -37
  357
  449
  536
  631
  735
  849
  972
  1,107
  1,251
  1,408
  1,738
  1,919
  2,113
  2,321
  2,544
  2,782
  3,036
  3,307
  3,596
  3,904
  4,232
  4,581
  4,951
  5,345
  5,763
  6,207
  6,678
  7,178
  7,707
  8,269
Net income, $m
  1,428
  965
  1,215
  1,449
  1,706
  1,987
  2,295
  2,629
  2,992
  3,384
  3,806
  4,699
  5,188
  5,713
  6,276
  6,878
  7,521
  8,208
  8,942
  9,723
  10,556
  11,442
  12,385
  13,387
  14,452
  15,583
  16,783
  18,056
  19,407
  20,839
  22,356

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,742
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  33,638
  33,964
  35,387
  36,898
  38,501
  40,199
  41,995
  43,894
  45,900
  48,017
  50,250
  52,605
  55,087
  57,701
  60,454
  63,352
  66,403
  69,612
  72,988
  76,539
  80,273
  84,199
  88,326
  92,664
  97,223
  102,014
  107,049
  112,339
  117,897
  123,737
  129,871
Adjusted assets (=assets-cash), $m
  30,896
  33,964
  35,387
  36,898
  38,501
  40,199
  41,995
  43,894
  45,900
  48,017
  50,250
  52,605
  55,087
  57,701
  60,454
  63,352
  66,403
  69,612
  72,988
  76,539
  80,273
  84,199
  88,326
  92,664
  97,223
  102,014
  107,049
  112,339
  117,897
  123,737
  129,871
Revenue / Adjusted assets
  4.753
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
  4.501
Average production assets, $m
  3,843
  3,975
  4,141
  4,318
  4,506
  4,704
  4,915
  5,137
  5,371
  5,619
  5,881
  6,156
  6,447
  6,753
  7,075
  7,414
  7,771
  8,146
  8,542
  8,957
  9,394
  9,853
  10,336
  10,844
  11,378
  11,938
  12,528
  13,147
  13,797
  14,480
  15,198
Working capital, $m
  -2,428
  -4,739
  -4,938
  -5,148
  -5,372
  -5,609
  -5,860
  -6,125
  -6,404
  -6,700
  -7,011
  -7,340
  -7,686
  -8,051
  -8,435
  -8,840
  -9,265
  -9,713
  -10,184
  -10,680
  -11,201
  -11,748
  -12,324
  -12,929
  -13,566
  -14,234
  -14,937
  -15,675
  -16,450
  -17,265
  -18,121
Total debt, $m
  4,463
  3,521
  4,802
  6,162
  7,605
  9,133
  10,750
  12,459
  14,264
  16,169
  18,179
  20,299
  22,532
  24,885
  27,363
  29,971
  32,716
  35,605
  38,643
  41,839
  45,200
  48,733
  52,447
  56,351
  60,455
  64,767
  69,298
  74,059
  79,062
  84,317
  89,838
Total liabilities, $m
  31,508
  30,567
  31,848
  33,208
  34,651
  36,179
  37,796
  39,505
  41,310
  43,215
  45,225
  47,345
  49,578
  51,931
  54,409
  57,017
  59,762
  62,651
  65,689
  68,885
  72,246
  75,779
  79,493
  83,397
  87,501
  91,813
  96,344
  101,105
  106,108
  111,363
  116,884
Total equity, $m
  2,129
  3,396
  3,539
  3,690
  3,850
  4,020
  4,200
  4,389
  4,590
  4,802
  5,025
  5,261
  5,509
  5,770
  6,045
  6,335
  6,640
  6,961
  7,299
  7,654
  8,027
  8,420
  8,833
  9,266
  9,722
  10,201
  10,705
  11,234
  11,790
  12,374
  12,987
Total liabilities and equity, $m
  33,637
  33,963
  35,387
  36,898
  38,501
  40,199
  41,996
  43,894
  45,900
  48,017
  50,250
  52,606
  55,087
  57,701
  60,454
  63,352
  66,402
  69,612
  72,988
  76,539
  80,273
  84,199
  88,326
  92,663
  97,223
  102,014
  107,049
  112,339
  117,898
  123,737
  129,871
Debt-to-equity ratio
  2.096
  1.040
  1.360
  1.670
  1.980
  2.270
  2.560
  2.840
  3.110
  3.370
  3.620
  3.860
  4.090
  4.310
  4.530
  4.730
  4.930
  5.110
  5.290
  5.470
  5.630
  5.790
  5.940
  6.080
  6.220
  6.350
  6.470
  6.590
  6.710
  6.810
  6.920
Adjusted equity ratio
  -0.000
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,428
  965
  1,215
  1,449
  1,706
  1,987
  2,295
  2,629
  2,992
  3,384
  3,806
  4,699
  5,188
  5,713
  6,276
  6,878
  7,521
  8,208
  8,942
  9,723
  10,556
  11,442
  12,385
  13,387
  14,452
  15,583
  16,783
  18,056
  19,407
  20,839
  22,356
Depreciation, amort., depletion, $m
  393
  774
  782
  789
  798
  806
  816
  825
  836
  847
  858
  271
  284
  297
  312
  327
  342
  359
  376
  395
  414
  434
  455
  478
  501
  526
  552
  579
  608
  638
  670
Funds from operations, $m
  4,207
  1,740
  1,997
  2,238
  2,503
  2,794
  3,111
  3,455
  3,828
  4,230
  4,665
  4,970
  5,472
  6,011
  6,587
  7,204
  7,864
  8,567
  9,318
  10,118
  10,970
  11,876
  12,840
  13,865
  14,953
  16,109
  17,335
  18,636
  20,015
  21,477
  23,025
Change in working capital, $m
  1,028
  -187
  -199
  -211
  -224
  -237
  -251
  -265
  -280
  -295
  -312
  -329
  -346
  -365
  -384
  -404
  -426
  -448
  -471
  -495
  -521
  -548
  -576
  -605
  -636
  -669
  -703
  -738
  -776
  -815
  -856
Cash from operations, $m
  3,179
  1,926
  2,195
  2,449
  2,727
  3,031
  3,361
  3,720
  4,107
  4,526
  4,976
  5,299
  5,818
  6,375
  6,971
  7,609
  8,289
  9,015
  9,789
  10,613
  11,491
  12,424
  13,416
  14,470
  15,589
  16,777
  18,037
  19,374
  20,790
  22,291
  23,881
Maintenance CAPEX, $m
  0
  -169
  -175
  -182
  -190
  -198
  -207
  -216
  -226
  -237
  -248
  -259
  -271
  -284
  -297
  -312
  -327
  -342
  -359
  -376
  -395
  -414
  -434
  -455
  -478
  -501
  -526
  -552
  -579
  -608
  -638
New CAPEX, $m
  -465
  -132
  -167
  -177
  -188
  -199
  -210
  -222
  -235
  -248
  -261
  -276
  -290
  -306
  -322
  -339
  -357
  -376
  -395
  -416
  -437
  -459
  -483
  -508
  -534
  -561
  -589
  -619
  -650
  -683
  -718
Cash from investing activities, $m
  -3,169
  -301
  -342
  -359
  -378
  -397
  -417
  -438
  -461
  -485
  -509
  -535
  -561
  -590
  -619
  -651
  -684
  -718
  -754
  -792
  -832
  -873
  -917
  -963
  -1,012
  -1,062
  -1,115
  -1,171
  -1,229
  -1,291
  -1,356
Free cash flow, $m
  10
  1,625
  1,854
  2,090
  2,349
  2,634
  2,944
  3,281
  3,646
  4,041
  4,467
  4,764
  5,257
  5,785
  6,352
  6,958
  7,606
  8,297
  9,035
  9,822
  10,659
  11,551
  12,499
  13,507
  14,578
  15,715
  16,922
  18,203
  19,561
  21,000
  22,525
Issuance/(repayment) of debt, $m
  713
  -332
  1,281
  1,360
  1,443
  1,528
  1,617
  1,709
  1,805
  1,905
  2,010
  2,119
  2,234
  2,353
  2,478
  2,608
  2,745
  2,888
  3,039
  3,196
  3,361
  3,533
  3,714
  3,904
  4,103
  4,312
  4,531
  4,761
  5,002
  5,255
  5,521
Issuance/(repurchase) of shares, $m
  -2,192
  705
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  853
  373
  1,281
  1,360
  1,443
  1,528
  1,617
  1,709
  1,805
  1,905
  2,010
  2,119
  2,234
  2,353
  2,478
  2,608
  2,745
  2,888
  3,039
  3,196
  3,361
  3,533
  3,714
  3,904
  4,103
  4,312
  4,531
  4,761
  5,002
  5,255
  5,521
Total cash flow (excl. dividends), $m
  862
  1,999
  3,135
  3,450
  3,792
  4,162
  4,560
  4,990
  5,452
  5,947
  6,477
  6,884
  7,490
  8,138
  8,830
  9,566
  10,351
  11,186
  12,074
  13,017
  14,020
  15,084
  16,213
  17,411
  18,681
  20,027
  21,454
  22,964
  24,563
  26,256
  28,046
Retained Cash Flow (-), $m
  -1,513
  -1,671
  -142
  -151
  -160
  -170
  -180
  -190
  -201
  -212
  -223
  -235
  -248
  -261
  -275
  -290
  -305
  -321
  -338
  -355
  -373
  -393
  -413
  -434
  -456
  -479
  -503
  -529
  -556
  -584
  -613
Prev. year cash balance distribution, $m
 
  403
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  731
  2,992
  3,299
  3,632
  3,992
  4,381
  4,800
  5,251
  5,735
  6,254
  6,648
  7,242
  7,877
  8,554
  9,276
  10,046
  10,865
  11,736
  12,662
  13,646
  14,691
  15,801
  16,977
  18,225
  19,548
  20,950
  22,435
  24,007
  25,672
  27,433
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  701
  2,739
  2,871
  2,990
  3,094
  3,179
  3,243
  3,282
  3,295
  3,279
  3,157
  3,091
  2,995
  2,872
  2,723
  2,553
  2,364
  2,161
  1,950
  1,734
  1,520
  1,311
  1,113
  928
  760
  611
  482
  371
  280
  207
Current shareholders' claim on cash, %
  100
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2

AmerisourceBergen Corporation sources and distributes pharmaceutical products in the United States and internationally. Its Pharmaceutical Distribution segment distributes brand-name and generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, outsourced compounded sterile preparations, and related services to various healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and other alternate site pharmacies, and other customers. It also provides pharmacy management, staffing, and other consulting services; supply management software to retail and institutional healthcare providers; and packaging solutions to various institutional and retail healthcare providers. In addition, this segment provides pharmaceutical distribution and other services primarily to physicians who specialize in various disease states, primarily oncology, as well as to other healthcare providers, including hospitals and dialysis clinics; distributes plasma and other blood products, injectable pharmaceuticals, vaccines, and other specialty products; and offers third party logistics and outcomes research, and other services for biotechnology and other pharmaceutical manufacturers. The company’s Other segment provides commercialization support services, including reimbursement support programs, outcomes research, contract field staffing, patient assistance and co-pay assistance programs, adherence programs, risk mitigation services, and other market access programs to pharmaceutical and biotechnology manufacturers; specialty transportation and logistics services for the biopharmaceutical industry; and animal health care products. It markets its products and services through independent sales forces and marketing organizations. AmerisourceBergen Corporation was founded in 1985 and is headquartered in Chesterbrook, Pennsylvania.

FINANCIAL RATIOS  of  AmerisourceBergen (ABC)

Valuation Ratios
P/E Ratio 12.3
Price to Sales 0.1
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 5.5
Price to Free Cash Flow 6.5
Growth Rates
Sales Growth Rate 8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100.4%
Cap. Spend. - 3 Yr. Gr. Rate 18.1%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 181%
Total Debt to Equity 209.6%
Interest Coverage 12
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 1.9%
Return On Total Capital 26.1%
Ret/ On T. Cap. - 3 Yr. Avg. 10%
Return On Equity 104%
Return On Equity - 3 Yr. Avg. 35.4%
Asset Turnover 4.8
Profitability Ratios
Gross Margin 2.8%
Gross Margin - 3 Yr. Avg. 2.6%
EBITDA Margin 1.3%
EBITDA Margin - 3 Yr. Avg. 0.8%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. 0.7%
Pre-Tax Margin 0.9%
Pre-Tax Margin - 3 Yr. Avg. 0.6%
Net Profit Margin 1%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate -2.7%
Eff/ Tax Rate - 3 Yr. Avg. 68.9%
Payout Ratio 20.2%

ABC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABC stock intrinsic value calculation we used $146850 million for the last fiscal year's total revenue generated by AmerisourceBergen. The default revenue input number comes from 2016 income statement of AmerisourceBergen. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ABC stock valuation model: a) initial revenue growth rate of 4.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ABC is calculated based on our internal credit rating of AmerisourceBergen, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of AmerisourceBergen.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ABC stock the variable cost ratio is equal to 89.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14113 million in the base year in the intrinsic value calculation for ABC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for AmerisourceBergen.

Corporate tax rate of 27% is the nominal tax rate for AmerisourceBergen. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ABC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ABC are equal to 2.6%.

Life of production assets of 22.7 years is the average useful life of capital assets used in AmerisourceBergen operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ABC is equal to -3.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2129 million for AmerisourceBergen - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 216.741 million for AmerisourceBergen is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of AmerisourceBergen at the current share price and the inputted number of shares is $17.3 billion.

Management's discussion and analysis

We are one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. We deliver innovative programs and services designed to increase the effectiveness and efficiency of the pharmaceutical supply chain in both human and animal health. We are organized based upon the products and services we provide to our customers. Our operations are comprised of the Pharmaceutical Distribution reportable segment and Other.

Pharmaceutical Distribution Segment

The Pharmaceutical Distribution reportable segment is comprised of two operating segments, which include the operations of ABDC and ABSG. Servicing healthcare providers in the pharmaceutical supply channel, the Pharmaceutical Distribution segment's operations provide drug distribution and related services designed to reduce healthcare costs and improve patient outcomes.
ABDC distributes a comprehensive offering of brand-name and generic pharmaceuticals (including specialty pharmaceutical products), over-the-counter healthcare products, home healthcare supplies and equipment, outsourced CSPs, and related services to a wide variety of healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and alternate site pharmacies, and other customers. ABDC also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers. Additionally, ABDC delivers packaging solutions to institutional and retail healthcare providers.
ABSG, through a number of operating businesses, provides pharmaceutical distribution and additional services to physicians who specialize in a variety of disease states, especially oncology, and to other healthcare providers, including hospitals and dialysis clinics. ABSG also distributes plasma and other blood products, injectible pharmaceuticals, vaccines, and other specialty products. Additionally, ABSG provides third party logistics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers.
Our use of the term "specialty" and "specialty pharmaceutical products" refers to drugs used to treat complex diseases, such as cancer, diabetes, and multiple sclerosis. Specialty pharmaceutical products are part of complex treatment regimens for serious conditions and diseases that generally require ongoing clinical monitoring. We believe the terms "specialty" and "specialty pharmaceutical products" are used consistently by industry participants and our competitors. However, we cannot be certain that other distributors of specialty products define these and other similar terms in exactly the same manner as we do.
Both ABDC and ABSG distribute specialty drugs to their customers, with the principal difference between these two operating segments being that ABSG operates distribution facilities that focus primarily on complex disease treatment regimens. Therefore, a product distributed from one of ABSG's distribution facilities results in revenue reported under ABSG, and a product distributed from one of ABDC's distribution centers results in revenue reported under ABDC. Essentially all of ABSG's sales consist of specialty pharmaceutical products. ABDC's sales of specialty pharmaceutical products have historically been a relatively small component of its overall revenue.

Other

Other consists of the ABCS operating segment, the World Courier operating segment, and the MWI operating segment. The results of operations of these operating segments are not significant enough to require separate reportable segment disclosure, and therefore, have been included in "Other" for the purpose of our reportable segment presentation.
ABCS, through a number of operating businesses, provides commercialization support services including reimbursement support programs, outcomes research, contract field staffing, patient assistance and co-pay assistance programs, adherence programs, risk mitigation services, and other market access programs to pharmaceutical and biotechnology manufacturers. World Courier, which operates in over 50 countries, is a leading global specialty transportation and logistics provider for the biopharmaceutical industry. MWI is a leading animal health distribution company in the United States and in the United Kingdom. MWI sells pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, and various other products to customers in both the companion animal and production animal markets.

Recent Developments

In August 2016, we and WBA amended the 2017 Warrants so that they became exercisable in whole or in part during the six month period beginning in August 2016 at an exercise price of $52.50. In August 2016, WBA exercised the 2017 Warrants and purchased 22,696,912 shares of our Common Stock for $1,191.6 million. The earnings per share dilutive effect of the exercise of the Warrants was fully mitigated by our hedging a portion of our obligation to deliver common stock with a financial institution and repurchasing additional shares of our Common Stock under special share repurchase programs for our own account over time.
In November 2016, our board of directors authorized a new share repurchase program allowing us to purchase up to $1.0 billion in shares of our Common Stock, subject to market conditions.

Executive Summary

This executive summary provides highlights from the results of operations that follow:
   
Revenue increased 8.0% from the prior fiscal year as a result of ABDC's increased sales of brand and generic products and the strong revenue growth of ABSG. The addition of MWI, which was acquired in February 2015, also contributed to the revenue growth in the current fiscal year;
   
Pharmaceutical Distribution gross profit increased 2.9% from the prior fiscal year as the result of the contribution from our recent PharMEDium acquisition and segment revenue growth. Gross profit growth in the current fiscal year benefited from the incremental income from ABDC's participation in the WBA global sourcing arrangement and was adversely impacted by lower generic price appreciation, an increase in generic price deflation, and contract renewals with the Department of Defense ("DOD"), a significant GPO customer, and Kaiser Permanente ("Kaiser"), at less favorable terms;
   
Total gross profit increased 21.1% from the prior fiscal year primarily due to the addition of MWI, a reduction in LIFO expense, which was $200.2 million in the current fiscal year in comparison to $542.8 million in the prior fiscal year, and an increased gain from antitrust litigation settlements, which was $133.8 million in the current fiscal year in comparison to $65.5 million in the prior fiscal year;
   
Distribution, selling, and administrative expenses increased 9.6% from the prior fiscal year, primarily due to the addition of MWI, and to a lesser extent, PharMEDium;
   
Total operating expenses were impacted by Warrants. Warrants expense was $140.3 million in the current fiscal year compared $912.7 million in the prior fiscal year. Warrants expense decreased significantly from the prior fiscal year primarily due to the decline in our stock price since September 30, 2015. Amortization expense increased $96.0 million from the prior fiscal year primarily due to the amortization of intangible assets originating from the PharMEDium and MWI acquisitions. We incurred significantly more employee severance costs in the current fiscal year due to an initiative to improve operating efficiency, and we also incurred a settlement charge during the current fiscal year in connection with the final settlement of our salaried defined benefit pension plan;
   
Total segment operating income increased by 6.6% compared to the prior fiscal year, primarily due to the additions of MWI and PharMEDium; and
   
Income taxes were a benefit of $37.0 million in the current fiscal year as compared to an expense of $407.1 million in the prior fiscal year. In November 2015, we received a private letter ruling from the Internal Revenue Service ("IRS"), which entitles us to an income tax deduction equal to the fair value of the Warrants on the date of exercise. As a result, we recorded a deferred tax asset and recognized a tax benefit adjustment of approximately $456 million, which represented the estimated benefit from the tax deduction for the increase in the fair value of the Warrants from the issuance date through September 30, 2015. This tax benefit adjustment had a significant impact to our effective tax rate in the fiscal year ended September 30, 2016. In March 2016 and August 2016, the Warrants were exercised by WBA, and an additional tax benefit of approximately $52 million was recognized primarily related to the change in the fair value of the Warrants from September 30, 2015 to their respective exercise dates in fiscal 2016. Our income tax rate was also favorably impacted in fiscal 2016 due to the growth of our international service offerings.

[Source: Form 10-K dated 2016-11-22]

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COMPANY NEWS

▶ AmerisourceBergen Declares Quarterly Dividend   [Aug-10-17 09:29AM  Business Wire]
▶ Why AmerisourceBergen Corp. Fell Dramatically Today   [Aug-03-17 06:19PM  Motley Fool]
▶ The Best Stock in Pennsylvania: AmerisourceBergen   [Jul-21-17 12:20PM  Kiplinger]
▶ Ohio sues five drug companies over opioid crisis   [May-31-17 02:20PM  Reuters]
▶ Plunging oil prices and energy companies hit stock indexes   [May-04-17 02:37PM  Associated Press]
▶ Correction Is Over for AmerisourceBergen   [May-01-17 03:29PM  TheStreet.com]
▶ AmerisourceBergen CEO on drug pricing: 'Weve had some bad actors'   [Apr-26-17 02:50PM  American City Business Journals]
▶ [$$] Cardinal Health to Buy Medtronic Businesses for $6.1 Billion   [Apr-18-17 11:25AM  The Wall Street Journal]
▶ What's working: Health and housing plays   [Feb-21-17 08:15AM  CNBC Videos]
▶ AmerisourceBergen plans $40 million Amazon-like distribution center in metro Atlanta   [Feb-16-17 11:42AM  American City Business Journals]
▶ Here's Why AmerisourceBergen Is Up 16% This Year   [Feb-15-17 09:24PM  TheStreet.com]
▶ AmerisourceBergen Declares Quarterly Dividend   [Feb-09-17 09:26AM  Business Wire]
▶ [$$] Comings & Goings   [Feb-01-17 10:26AM  at The Wall Street Journal]
▶ 5 Stocks Billionaires Were Dumping in Q3   [Nov-28-16 10:27PM  at Insider Monkey]
Stock chart of ABC Financial statements of ABC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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