Intrinsic value of AmerisourceBergen - ABC

Previous Close

$87.72

  Intrinsic Value

$199.36

stock screener

  Rating & Target

str. buy

+127%

Previous close

$87.72

 
Intrinsic value

$199.36

 
Up/down potential

+127%

 
Rating

str. buy

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 2017), $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 19.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.30
  4.37
  4.43
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.89
  4.91
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
Revenue, $m
  159,729
  166,709
  174,100
  181,916
  190,176
  198,899
  208,104
  217,813
  228,047
  238,831
  250,190
  262,149
  274,739
  287,987
  301,925
  316,586
  332,005
  348,217
  365,262
  383,180
  402,013
  421,806
  442,605
  464,461
  487,424
  511,551
  536,897
  563,523
  591,493
  620,873
Variable operating expenses, $m
  158,094
  164,964
  172,237
  179,930
  188,060
  196,645
  205,705
  215,260
  225,332
  235,946
  246,237
  258,008
  270,399
  283,437
  297,155
  311,585
  326,760
  342,716
  359,492
  377,127
  395,662
  415,142
  435,613
  457,124
  479,725
  503,470
  528,415
  554,621
  582,149
  611,065
Fixed operating expenses, $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
Total operating expenses, $m
  158,094
  164,964
  172,237
  179,930
  188,060
  196,645
  205,705
  215,260
  225,332
  235,946
  246,237
  258,008
  270,399
  283,437
  297,155
  311,585
  326,760
  342,716
  359,492
  377,127
  395,662
  415,142
  435,613
  457,124
  479,725
  503,470
  528,415
  554,621
  582,149
  611,065
Operating income, $m
  1,635
  1,746
  1,862
  1,986
  2,116
  2,254
  2,400
  2,553
  2,715
  2,885
  3,952
  4,141
  4,340
  4,549
  4,770
  5,001
  5,245
  5,501
  5,770
  6,053
  6,351
  6,663
  6,992
  7,337
  7,700
  8,081
  8,481
  8,902
  9,344
  9,808
EBITDA, $m
  3,625
  3,784
  3,952
  4,129
  4,316
  4,514
  4,723
  4,944
  5,176
  5,421
  5,679
  5,950
  6,236
  6,536
  6,853
  7,186
  7,536
  7,904
  8,290
  8,697
  9,125
  9,574
  10,046
  10,542
  11,063
  11,611
  12,186
  12,790
  13,425
  14,092
Interest expense (income), $m
  125
  205
  200
  278
  361
  448
  541
  639
  742
  851
  965
  1,086
  1,213
  1,348
  1,489
  1,637
  1,793
  1,958
  2,130
  2,312
  2,503
  2,704
  2,915
  3,137
  3,370
  3,615
  3,873
  4,143
  4,427
  4,725
  5,039
Earnings before tax, $m
  1,431
  1,546
  1,585
  1,625
  1,668
  1,713
  1,761
  1,811
  1,864
  1,920
  2,866
  2,928
  2,993
  3,061
  3,132
  3,208
  3,287
  3,370
  3,458
  3,550
  3,647
  3,748
  3,855
  3,967
  4,085
  4,209
  4,339
  4,475
  4,618
  4,769
Tax expense, $m
  386
  417
  428
  439
  450
  463
  475
  489
  503
  518
  774
  790
  808
  826
  846
  866
  888
  910
  934
  958
  985
  1,012
  1,041
  1,071
  1,103
  1,136
  1,171
  1,208
  1,247
  1,288
Net income, $m
  1,044
  1,129
  1,157
  1,186
  1,218
  1,251
  1,286
  1,322
  1,361
  1,401
  2,092
  2,137
  2,185
  2,234
  2,287
  2,342
  2,400
  2,460
  2,524
  2,591
  2,662
  2,736
  2,814
  2,896
  2,982
  3,072
  3,167
  3,267
  3,371
  3,481

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  36,838
  38,448
  40,152
  41,955
  43,860
  45,872
  47,995
  50,234
  52,594
  55,081
  57,701
  60,459
  63,362
  66,418
  69,632
  73,013
  76,569
  80,308
  84,239
  88,372
  92,715
  97,280
  102,077
  107,117
  112,413
  117,978
  123,823
  129,964
  136,414
  143,190
Adjusted assets (=assets-cash), $m
  36,838
  38,448
  40,152
  41,955
  43,860
  45,872
  47,995
  50,234
  52,594
  55,081
  57,701
  60,459
  63,362
  66,418
  69,632
  73,013
  76,569
  80,308
  84,239
  88,372
  92,715
  97,280
  102,077
  107,117
  112,413
  117,978
  123,823
  129,964
  136,414
  143,190
Revenue / Adjusted assets
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
  4.336
Average production assets, $m
  11,021
  11,503
  12,013
  12,552
  13,122
  13,724
  14,359
  15,029
  15,735
  16,479
  17,263
  18,088
  18,957
  19,871
  20,833
  21,844
  22,908
  24,027
  25,203
  26,439
  27,739
  29,105
  30,540
  32,048
  33,632
  35,297
  37,046
  38,883
  40,813
  42,840
Working capital, $m
  -14,535
  -15,171
  -15,843
  -16,554
  -17,306
  -18,100
  -18,937
  -19,821
  -20,752
  -21,734
  -22,767
  -23,856
  -25,001
  -26,207
  -27,475
  -28,809
  -30,212
  -31,688
  -33,239
  -34,869
  -36,583
  -38,384
  -40,277
  -42,266
  -44,356
  -46,551
  -48,858
  -51,281
  -53,826
  -56,499
Total debt, $m
  3,695
  5,144
  6,678
  8,301
  10,015
  11,826
  13,736
  15,751
  17,876
  20,114
  22,472
  24,954
  27,567
  30,317
  33,210
  36,253
  39,454
  42,819
  46,357
  50,076
  53,985
  58,093
  62,410
  66,947
  71,713
  76,721
  81,982
  87,509
  93,314
  99,412
Total liabilities, $m
  33,154
  34,603
  36,137
  37,759
  39,474
  41,284
  43,195
  45,210
  47,334
  49,573
  51,930
  54,413
  57,026
  59,776
  62,669
  65,712
  68,912
  72,278
  75,816
  79,535
  83,444
  87,552
  91,869
  96,406
  101,172
  106,180
  111,441
  116,967
  122,773
  128,871
Total equity, $m
  3,684
  3,845
  4,015
  4,195
  4,386
  4,587
  4,799
  5,023
  5,259
  5,508
  5,770
  6,046
  6,336
  6,642
  6,963
  7,301
  7,657
  8,031
  8,424
  8,837
  9,272
  9,728
  10,208
  10,712
  11,241
  11,798
  12,382
  12,996
  13,641
  14,319
Total liabilities and equity, $m
  36,838
  38,448
  40,152
  41,954
  43,860
  45,871
  47,994
  50,233
  52,593
  55,081
  57,700
  60,459
  63,362
  66,418
  69,632
  73,013
  76,569
  80,309
  84,240
  88,372
  92,716
  97,280
  102,077
  107,118
  112,413
  117,978
  123,823
  129,963
  136,414
  143,190
Debt-to-equity ratio
  1.000
  1.340
  1.660
  1.980
  2.280
  2.580
  2.860
  3.140
  3.400
  3.650
  3.890
  4.130
  4.350
  4.560
  4.770
  4.970
  5.150
  5.330
  5.500
  5.670
  5.820
  5.970
  6.110
  6.250
  6.380
  6.500
  6.620
  6.730
  6.840
  6.940
Adjusted equity ratio
  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
  1,044
  1,129
  1,157
  1,186
  1,218
  1,251
  1,286
  1,322
  1,361
  1,401
  2,092
  2,137
  2,185
  2,234
  2,287
  2,342
  2,400
  2,460
  2,524
  2,591
  2,662
  2,736
  2,814
  2,896
  2,982
  3,072
  3,167
  3,267
  3,371
  3,481
Depreciation, amort., depletion, $m
  1,990
  2,038
  2,089
  2,143
  2,200
  2,260
  2,324
  2,391
  2,461
  2,536
  1,726
  1,809
  1,896
  1,987
  2,083
  2,184
  2,291
  2,403
  2,520
  2,644
  2,774
  2,910
  3,054
  3,205
  3,363
  3,530
  3,705
  3,888
  4,081
  4,284
Funds from operations, $m
  3,034
  3,167
  3,246
  3,330
  3,418
  3,511
  3,609
  3,713
  3,822
  3,937
  3,819
  3,946
  4,080
  4,221
  4,370
  4,526
  4,690
  4,863
  5,045
  5,235
  5,436
  5,647
  5,868
  6,101
  6,345
  6,602
  6,872
  7,155
  7,453
  7,765
Change in working capital, $m
  -599
  -635
  -673
  -711
  -752
  -794
  -838
  -883
  -931
  -981
  -1,034
  -1,088
  -1,146
  -1,206
  -1,268
  -1,334
  -1,403
  -1,475
  -1,551
  -1,631
  -1,714
  -1,801
  -1,893
  -1,989
  -2,090
  -2,195
  -2,307
  -2,423
  -2,545
  -2,674
Cash from operations, $m
  3,634
  3,802
  3,918
  4,041
  4,170
  4,305
  4,447
  4,596
  4,753
  4,918
  4,852
  5,034
  5,226
  5,427
  5,638
  5,860
  6,093
  6,338
  6,596
  6,866
  7,150
  7,448
  7,761
  8,090
  8,435
  8,797
  9,178
  9,578
  9,998
  10,439
Maintenance CAPEX, $m
  -1,058
  -1,102
  -1,150
  -1,201
  -1,255
  -1,312
  -1,372
  -1,436
  -1,503
  -1,574
  -1,648
  -1,726
  -1,809
  -1,896
  -1,987
  -2,083
  -2,184
  -2,291
  -2,403
  -2,520
  -2,644
  -2,774
  -2,910
  -3,054
  -3,205
  -3,363
  -3,530
  -3,705
  -3,888
  -4,081
New CAPEX, $m
  -439
  -482
  -510
  -539
  -570
  -602
  -635
  -670
  -706
  -744
  -784
  -825
  -869
  -914
  -962
  -1,012
  -1,064
  -1,119
  -1,176
  -1,236
  -1,299
  -1,366
  -1,435
  -1,508
  -1,584
  -1,665
  -1,749
  -1,837
  -1,930
  -2,027
Cash from investing activities, $m
  -1,497
  -1,584
  -1,660
  -1,740
  -1,825
  -1,914
  -2,007
  -2,106
  -2,209
  -2,318
  -2,432
  -2,551
  -2,678
  -2,810
  -2,949
  -3,095
  -3,248
  -3,410
  -3,579
  -3,756
  -3,943
  -4,140
  -4,345
  -4,562
  -4,789
  -5,028
  -5,279
  -5,542
  -5,818
  -6,108
Free cash flow, $m
  2,137
  2,218
  2,258
  2,300
  2,344
  2,391
  2,439
  2,491
  2,544
  2,601
  2,421
  2,483
  2,548
  2,617
  2,689
  2,765
  2,845
  2,929
  3,017
  3,109
  3,206
  3,308
  3,415
  3,528
  3,646
  3,769
  3,900
  4,036
  4,180
  4,330
Issuance/(repayment) of debt, $m
  -98
  1,449
  1,534
  1,622
  1,715
  1,811
  1,911
  2,015
  2,124
  2,238
  2,358
  2,482
  2,613
  2,750
  2,893
  3,043
  3,200
  3,365
  3,538
  3,719
  3,909
  4,108
  4,317
  4,536
  4,766
  5,008
  5,261
  5,527
  5,806
  6,098
Issuance/(repurchase) of shares, $m
  575
  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  
  477
  1,449
  1,534
  1,622
  1,715
  1,811
  1,911
  2,015
  2,124
  2,238
  2,358
  2,482
  2,613
  2,750
  2,893
  3,043
  3,200
  3,365
  3,538
  3,719
  3,909
  4,108
  4,317
  4,536
  4,766
  5,008
  5,261
  5,527
  5,806
  6,098
Total cash flow (excl. dividends), $m
  2,614
  3,667
  3,792
  3,923
  4,059
  4,201
  4,350
  4,506
  4,669
  4,839
  4,778
  4,965
  5,161
  5,367
  5,583
  5,809
  6,046
  6,294
  6,555
  6,828
  7,115
  7,416
  7,732
  8,064
  8,412
  8,777
  9,161
  9,563
  9,985
  10,429
Retained Cash Flow (-), $m
  -1,620
  -161
  -170
  -180
  -191
  -201
  -212
  -224
  -236
  -249
  -262
  -276
  -290
  -306
  -321
  -338
  -356
  -374
  -393
  -413
  -434
  -456
  -480
  -504
  -530
  -556
  -585
  -614
  -645
  -678
Prev. year cash balance distribution, $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 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
  994
  3,506
  3,622
  3,742
  3,868
  4,000
  4,138
  4,282
  4,433
  4,591
  4,516
  4,690
  4,871
  5,062
  5,261
  5,470
  5,690
  5,920
  6,162
  6,415
  6,681
  6,960
  7,253
  7,560
  7,882
  8,221
  8,576
  8,949
  9,340
  9,751
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
  953
  3,210
  3,152
  3,081
  2,998
  2,903
  2,795
  2,676
  2,546
  2,407
  2,145
  2,001
  1,852
  1,699
  1,545
  1,390
  1,238
  1,090
  949
  815
  691
  577
  475
  385
  307
  240
  184
  138
  102
  73
Current shareholders' claim on cash, %
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1

AmerisourceBergen Corporation is a pharmaceutical sourcing and distribution services company. The Company's segments include Pharmaceutical Distribution and Other. The Company provides services to healthcare providers, and pharmaceutical and biotech manufacturers. As of June 30, 2016, the Pharmaceutical Distribution segment consists of two operating segments, including the operations of AmerisourceBergen Drug Corporation (ABDC) and AmerisourceBergen Specialty Group (ABSG), which distributes specialty drugs to their customers. Servicing healthcare providers in the pharmaceutical supply channel, the Pharmaceutical Distribution segment's operations provide drug distribution and related services. The Other segment consists of the operations of various segments, including the AmerisourceBergen Consulting Services (ABCS), the World Courier Group, Inc. and the MWI Veterinary Supply, Inc. ABSG operates distribution facilities that focus primarily on complex disease treatment regimens.

FINANCIAL RATIOS  of  AmerisourceBergen (ABC)

Valuation Ratios
P/E Ratio 52.5
Price to Sales 0.1
Price to Book 9.3
Price to Tangible Book
Price to Cash Flow 12.7
Price to Free Cash Flow 18.4
Growth Rates
Sales Growth Rate 4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0.2%
Cap. Spend. - 3 Yr. Gr. Rate 12%
Financial Strength
Quick Ratio 203
Current Ratio 0
LT Debt to Equity 183.2%
Total Debt to Equity 183.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 1.2%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 17.4%
Return On Equity - 3 Yr. Avg. 36.9%
Asset Turnover 4.4
Profitability Ratios
Gross Margin 3%
Gross Margin - 3 Yr. Avg. 2.8%
EBITDA Margin 1%
EBITDA Margin - 3 Yr. Avg. 0.9%
Operating Margin 0.7%
Oper. Margin - 3 Yr. Avg. 0.7%
Pre-Tax Margin 0.6%
Pre-Tax Margin - 3 Yr. Avg. 0.6%
Net Profit Margin 0.2%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate 60.3%
Eff/ Tax Rate - 3 Yr. Avg. 69.7%
Payout Ratio 87.9%

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 $153144 million for the last fiscal year's total revenue generated by AmerisourceBergen. The default revenue input number comes from 2017 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 4.3% 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 99%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 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 5.4% 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 6.9%.

Life of production assets of 10 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 -9.1%. 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 - $2064 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 218 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 $19.1 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

▶ Cambridge biotech Sage to open postpartum depression support center in North Carolina   [Aug-13-18 10:16AM  American City Business Journals]
▶ AmerisourceBergen Declares Quarterly Dividend   [Aug-09-18 04:30PM  Business Wire]
▶ Millennium office complex hits the market   [Aug-06-18 11:45AM  American City Business Journals]
▶ U.S. Attorney's office in Florida subpoenas AmerisourceBergen as part of opioid probe   [Aug-03-18 04:13PM  American City Business Journals]
▶ Fortune 500 giant spending millions to upgrade Memphis plant   [01:38PM  American City Business Journals]
▶ AmerisourceBergen: Fiscal 3Q Earnings Snapshot   [06:48AM  Associated Press]
▶ AmerisourceBergen's Q3 Earnings Preview   [Aug-01-18 03:12PM  Benzinga]
▶ PHOTOS: Lash Group now up to 2,900 employees at Fort Mill campus   [Jul-13-18 03:01PM  American City Business Journals]
▶ Fort Mill-based Lash Group to lay off 200 workers in Pittsburgh area   [01:30PM  American City Business Journals]
▶ AmerisourceBergen picks new headquarters location   [03:47PM  American City Business Journals]
▶ AmerisourceBergen picks new headquarters location   [10:15AM  American City Business Journals]
▶ Add Bucks County to list of those suing opioid manufacturers, distributors   [May-30-18 08:10AM  American City Business Journals]
▶ Biopharma Stocks Fly As Trump Speech Seen As 'More Bark Than Bite'   [May-11-18 03:51PM  Investor's Business Daily]
▶ [$$] Opioid Shipments to Small Towns Come Under Spotlight at Hearing   [May-09-18 12:15AM  The Wall Street Journal]
▶ AmerisourceBergen: Fiscal 2Q Earnings Snapshot   [06:40AM  Associated Press]
▶ AmerisourceBergen Earnings Outlook   [May-01-18 03:26PM  Benzinga]
▶ Parexel continues C-suite hire with veteran AmerisourceBergen exec   [Apr-26-18 05:41PM  American City Business Journals]
▶ How one organization is fighting NC's opioid crisis   [Apr-17-18 12:43PM  American City Business Journals]
▶ Opioid trials to begin in 2019 as settlement is also pushed   [Apr-12-18 04:28PM  Associated Press]
▶ Edited Transcript of ABC presentation 7-Mar-17 1:40pm GMT   [Apr-10-18 11:00AM  Thomson Reuters StreetEvents]
▶ Layoffs expected in Rockville as health consulting group shutters local operation   [Mar-27-18 02:48PM  American City Business Journals]
▶ AmerisourceBergen stock drops as Walgreens takeover talks fizzle   [05:20PM  American City Business Journals]
▶ 4 Stocks Move Tuesday   [02:47PM  GuruFocus.com]
▶ Amerisource shares jump on Walgreens buyout report   [Feb-18-18 09:01AM  Associated Press]
▶ Report: Walgreens considering bid to buy Frisco's largest private employer   [Feb-15-18 07:40AM  American City Business Journals]
▶ Company News For Feb 14, 2018   [Feb-14-18 10:10AM  Zacks]
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