Intrinsic value of AmerisourceBergen - ABC

Previous Close

$83.22

  Intrinsic Value

$329.26

stock screener

  Rating & Target

str. buy

+296%

Previous close

$83.22

 
Intrinsic value

$329.26

 
Up/down potential

+296%

 
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 0001), $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 18.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.50
  10.85
  10.27
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.20
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
Revenue, $m
  170,755
  189,282
  208,712
  229,038
  250,257
  272,375
  295,403
  319,357
  344,260
  370,143
  397,039
  424,990
  454,041
  484,245
  515,658
  548,341
  582,363
  617,794
  654,711
  693,195
  733,333
  775,216
  818,938
  864,603
  912,316
  962,189
  1,014,340
  1,068,890
  1,125,971
  1,185,717
Variable operating expenses, $m
  168,946
  187,180
  206,303
  226,307
  247,192
  268,960
  291,624
  315,200
  339,710
  365,183
  390,767
  418,276
  446,868
  476,595
  507,512
  539,679
  573,164
  608,035
  644,369
  682,245
  721,749
  762,970
  806,002
  850,945
  897,904
  946,990
  998,316
  1,052,005
  1,108,184
  1,166,986
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
  168,946
  187,180
  206,303
  226,307
  247,192
  268,960
  291,624
  315,200
  339,710
  365,183
  390,767
  418,276
  446,868
  476,595
  507,512
  539,679
  573,164
  608,035
  644,369
  682,245
  721,749
  762,970
  806,002
  850,945
  897,904
  946,990
  998,316
  1,052,005
  1,108,184
  1,166,986
Operating income, $m
  1,810
  2,102
  2,409
  2,730
  3,066
  3,415
  3,779
  4,157
  4,550
  4,959
  6,272
  6,714
  7,172
  7,650
  8,146
  8,662
  9,200
  9,759
  10,342
  10,950
  11,584
  12,246
  12,937
  13,658
  14,412
  15,200
  16,023
  16,885
  17,787
  18,731
EBITDA, $m
  2,925
  3,242
  3,575
  3,923
  4,287
  4,666
  5,060
  5,471
  5,897
  6,341
  6,801
  7,280
  7,778
  8,295
  8,833
  9,393
  9,976
  10,583
  11,215
  11,875
  12,562
  13,280
  14,029
  14,811
  15,628
  16,483
  17,376
  18,310
  19,288
  20,312
Interest expense (income), $m
  125
  205
  323
  531
  749
  976
  1,214
  1,462
  1,720
  1,989
  2,268
  2,558
  2,859
  3,173
  3,498
  3,837
  4,189
  4,555
  4,937
  5,334
  5,748
  6,179
  6,629
  7,098
  7,588
  8,100
  8,635
  9,194
  9,778
  10,390
  11,030
Earnings before tax, $m
  1,605
  1,779
  1,878
  1,982
  2,089
  2,201
  2,317
  2,437
  2,562
  2,691
  3,714
  3,854
  4,000
  4,151
  4,309
  4,473
  4,644
  4,823
  5,009
  5,203
  5,405
  5,617
  5,838
  6,070
  6,312
  6,565
  6,829
  7,107
  7,397
  7,701
Tax expense, $m
  433
  480
  507
  535
  564
  594
  625
  658
  692
  727
  1,003
  1,041
  1,080
  1,121
  1,163
  1,208
  1,254
  1,302
  1,352
  1,405
  1,459
  1,517
  1,576
  1,639
  1,704
  1,772
  1,844
  1,919
  1,997
  2,079
Net income, $m
  1,171
  1,299
  1,371
  1,447
  1,525
  1,606
  1,691
  1,779
  1,870
  1,965
  2,711
  2,813
  2,920
  3,030
  3,145
  3,265
  3,390
  3,520
  3,656
  3,798
  3,946
  4,101
  4,262
  4,431
  4,607
  4,792
  4,986
  5,188
  5,400
  5,622

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
  39,381
  43,654
  48,135
  52,822
  57,716
  62,817
  68,128
  73,652
  79,396
  85,365
  91,568
  98,014
  104,714
  111,680
  118,925
  126,463
  134,309
  142,480
  150,994
  159,870
  169,127
  178,786
  188,870
  199,401
  210,405
  221,907
  233,934
  246,515
  259,680
  273,459
Adjusted assets (=assets-cash), $m
  39,381
  43,654
  48,135
  52,822
  57,716
  62,817
  68,128
  73,652
  79,396
  85,365
  91,568
  98,014
  104,714
  111,680
  118,925
  126,463
  134,309
  142,480
  150,994
  159,870
  169,127
  178,786
  188,870
  199,401
  210,405
  221,907
  233,934
  246,515
  259,680
  273,459
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
  6,830
  7,571
  8,348
  9,162
  10,010
  10,895
  11,816
  12,774
  13,770
  14,806
  15,882
  17,000
  18,162
  19,370
  20,626
  21,934
  23,295
  24,712
  26,188
  27,728
  29,333
  31,009
  32,758
  34,584
  36,493
  38,488
  40,574
  42,756
  45,039
  47,429
Working capital, $m
  -5,464
  -6,057
  -6,679
  -7,329
  -8,008
  -8,716
  -9,453
  -10,219
  -11,016
  -11,845
  -12,705
  -13,600
  -14,529
  -15,496
  -16,501
  -17,547
  -18,636
  -19,769
  -20,951
  -22,182
  -23,467
  -24,807
  -26,206
  -27,667
  -29,194
  -30,790
  -32,459
  -34,204
  -36,031
  -37,943
Total debt, $m
  5,984
  9,830
  13,863
  18,082
  22,486
  27,077
  31,857
  36,829
  41,998
  47,370
  52,953
  58,754
  64,784
  71,054
  77,574
  84,358
  91,420
  98,774
  106,437
  114,425
  122,756
  131,449
  140,524
  150,003
  159,906
  170,258
  181,083
  192,405
  204,253
  216,655
Total liabilities, $m
  35,443
  39,288
  43,321
  47,540
  51,945
  56,535
  61,315
  66,287
  71,456
  76,829
  82,411
  88,213
  94,243
  100,512
  107,032
  113,816
  120,878
  128,232
  135,895
  143,883
  152,214
  160,907
  169,983
  179,461
  189,365
  199,716
  210,541
  221,864
  233,712
  246,113
Total equity, $m
  3,938
  4,365
  4,813
  5,282
  5,772
  6,282
  6,813
  7,365
  7,940
  8,537
  9,157
  9,801
  10,471
  11,168
  11,892
  12,646
  13,431
  14,248
  15,099
  15,987
  16,913
  17,879
  18,887
  19,940
  21,041
  22,191
  23,393
  24,652
  25,968
  27,346
Total liabilities and equity, $m
  39,381
  43,653
  48,134
  52,822
  57,717
  62,817
  68,128
  73,652
  79,396
  85,366
  91,568
  98,014
  104,714
  111,680
  118,924
  126,462
  134,309
  142,480
  150,994
  159,870
  169,127
  178,786
  188,870
  199,401
  210,406
  221,907
  233,934
  246,516
  259,680
  273,459
Debt-to-equity ratio
  1.520
  2.250
  2.880
  3.420
  3.900
  4.310
  4.680
  5.000
  5.290
  5.550
  5.780
  5.990
  6.190
  6.360
  6.520
  6.670
  6.810
  6.930
  7.050
  7.160
  7.260
  7.350
  7.440
  7.520
  7.600
  7.670
  7.740
  7.810
  7.870
  7.920
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
  1,171
  1,299
  1,371
  1,447
  1,525
  1,606
  1,691
  1,779
  1,870
  1,965
  2,711
  2,813
  2,920
  3,030
  3,145
  3,265
  3,390
  3,520
  3,656
  3,798
  3,946
  4,101
  4,262
  4,431
  4,607
  4,792
  4,986
  5,188
  5,400
  5,622
Depreciation, amort., depletion, $m
  1,115
  1,140
  1,166
  1,193
  1,221
  1,251
  1,282
  1,314
  1,347
  1,381
  529
  567
  605
  646
  688
  731
  776
  824
  873
  924
  978
  1,034
  1,092
  1,153
  1,216
  1,283
  1,352
  1,425
  1,501
  1,581
Funds from operations, $m
  2,287
  2,439
  2,537
  2,640
  2,746
  2,857
  2,973
  3,092
  3,217
  3,346
  3,241
  3,380
  3,525
  3,676
  3,833
  3,996
  4,167
  4,344
  4,529
  4,722
  4,924
  5,134
  5,354
  5,584
  5,824
  6,075
  6,338
  6,613
  6,901
  7,203
Change in working capital, $m
  -564
  -593
  -622
  -650
  -679
  -708
  -737
  -767
  -797
  -828
  -861
  -894
  -930
  -967
  -1,005
  -1,046
  -1,089
  -1,134
  -1,181
  -1,231
  -1,284
  -1,340
  -1,399
  -1,461
  -1,527
  -1,596
  -1,669
  -1,746
  -1,827
  -1,912
Cash from operations, $m
  2,850
  3,032
  3,159
  3,290
  3,426
  3,565
  3,710
  3,859
  4,014
  4,174
  4,101
  4,275
  4,455
  4,643
  4,838
  5,042
  5,255
  5,478
  5,711
  5,954
  6,208
  6,474
  6,753
  7,045
  7,351
  7,671
  8,007
  8,359
  8,728
  9,115
Maintenance CAPEX, $m
  -204
  -228
  -252
  -278
  -305
  -334
  -363
  -394
  -426
  -459
  -494
  -529
  -567
  -605
  -646
  -688
  -731
  -776
  -824
  -873
  -924
  -978
  -1,034
  -1,092
  -1,153
  -1,216
  -1,283
  -1,352
  -1,425
  -1,501
New CAPEX, $m
  -707
  -741
  -777
  -813
  -849
  -885
  -921
  -958
  -996
  -1,035
  -1,076
  -1,118
  -1,162
  -1,208
  -1,257
  -1,307
  -1,361
  -1,417
  -1,477
  -1,539
  -1,606
  -1,675
  -1,749
  -1,827
  -1,909
  -1,995
  -2,086
  -2,182
  -2,283
  -2,390
Cash from investing activities, $m
  -911
  -969
  -1,029
  -1,091
  -1,154
  -1,219
  -1,284
  -1,352
  -1,422
  -1,494
  -1,570
  -1,647
  -1,729
  -1,813
  -1,903
  -1,995
  -2,092
  -2,193
  -2,301
  -2,412
  -2,530
  -2,653
  -2,783
  -2,919
  -3,062
  -3,211
  -3,369
  -3,534
  -3,708
  -3,891
Free cash flow, $m
  1,940
  2,063
  2,129
  2,199
  2,271
  2,347
  2,425
  2,507
  2,592
  2,680
  2,532
  2,627
  2,726
  2,829
  2,936
  3,047
  3,163
  3,284
  3,410
  3,541
  3,678
  3,821
  3,971
  4,126
  4,289
  4,460
  4,638
  4,824
  5,019
  5,223
Issuance/(repayment) of debt, $m
  2,191
  3,846
  4,033
  4,219
  4,404
  4,591
  4,780
  4,972
  5,169
  5,372
  5,583
  5,802
  6,030
  6,269
  6,520
  6,784
  7,062
  7,354
  7,663
  7,988
  8,331
  8,693
  9,075
  9,478
  9,904
  10,352
  10,825
  11,323
  11,848
  12,401
Issuance/(repurchase) of shares, $m
  702
  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  
  2,893
  3,846
  4,033
  4,219
  4,404
  4,591
  4,780
  4,972
  5,169
  5,372
  5,583
  5,802
  6,030
  6,269
  6,520
  6,784
  7,062
  7,354
  7,663
  7,988
  8,331
  8,693
  9,075
  9,478
  9,904
  10,352
  10,825
  11,323
  11,848
  12,401
Total cash flow (excl. dividends), $m
  4,833
  5,909
  6,162
  6,418
  6,676
  6,938
  7,205
  7,479
  7,761
  8,052
  8,115
  8,429
  8,756
  9,098
  9,456
  9,831
  10,225
  10,638
  11,073
  11,529
  12,010
  12,515
  13,046
  13,605
  14,193
  14,812
  15,462
  16,147
  16,867
  17,624
Retained Cash Flow (-), $m
  -1,874
  -427
  -448
  -469
  -489
  -510
  -531
  -552
  -574
  -597
  -620
  -645
  -670
  -697
  -724
  -754
  -785
  -817
  -851
  -888
  -926
  -966
  -1,008
  -1,053
  -1,100
  -1,150
  -1,203
  -1,258
  -1,316
  -1,378
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
  2,959
  5,481
  5,714
  5,949
  6,186
  6,428
  6,674
  6,926
  7,187
  7,455
  7,494
  7,784
  8,086
  8,402
  8,732
  9,078
  9,441
  9,821
  10,221
  10,642
  11,084
  11,549
  12,038
  12,552
  13,093
  13,661
  14,260
  14,889
  15,551
  16,247
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
  2,837
  5,018
  4,973
  4,898
  4,795
  4,665
  4,509
  4,329
  4,128
  3,909
  3,559
  3,322
  3,074
  2,821
  2,564
  2,307
  2,054
  1,809
  1,574
  1,352
  1,146
  958
  789
  639
  509
  399
  306
  230
  170
  122
Current shareholders' claim on cash, %
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2
  96.2

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 49.8
Price to Sales 0.1
Price to Book 8.8
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow 17.5
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 $153143.826 million for the last fiscal year's total revenue generated by AmerisourceBergen. The default revenue input number comes from 0001 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 11.5% 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 4%.

Life of production assets of 40.3 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 -3.2%. 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 - $2064.461 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 216.357 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 $18.0 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

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▶ MarketPulse: Healthcare Slips as Bristol-Myers Squibb Sinks   [Oct-22-18 04:25PM  Investing.com]
▶ [$$] Former AmerisourceBergen Exec Blew Whistle That Led to Settlement   [Oct-02-18 06:15PM  The Wall Street Journal]
▶ AmerisourceBergen to pay $625M to settle civil fraud charges   [04:52PM  American City Business Journals]
▶ Dow Gains 114 Points as Trade Worries Fade   [Sep-11-18 05:05PM  Barrons.com]
▶ [$$] Drug Distributor AmerisourceBergen Names New Finance Chief   [Sep-10-18 05:19PM  The Wall Street Journal]
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▶ 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]

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