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Here’s Why You Should Steer Clear of AmerisourceBergen Now


AmerisourceBergen Corporation ABC has underperformed the industry in a year's time. The company’s shares grew 1.8% compared with the industry’s rally of 8.9%.

Also, sluggishness in the AmerisourceBergen Consulting Services (“ABCS”) segment is a concern. AmerisourceBergen continues to witness headwinds, thanks to the slowdown in hepatitis C revenues and conversion of branded drugs to the lower price generics. Further, a temporary slowdown in PharMEDium's growth is expected to mar the bottom line.

Consequently, the Zacks Consensus Estimate for 2018 adjusted earnings slipped 0.5% to $6.48 per share in the past two months. The company has a Zacks Rank #4 (Sell), which indicates expectations of underperformance in the near term.

Thus, here we take a detailed analysis on the factors that have been plaguing AmerisourceBergen.

What’s Plaguing AmerisourceBergen?

Recently, AmerisourceBergen received a grand jury subpoena from the U.S. Attorney's Office for the Western District of Tennessee for documents about its lab testing of a certain type of syringe made in its PharMEDium lab in Memphis.

The Memphis-based lab is the company’s largest highly-automated production facility. As a result of the subpoena, AmerisorceBergen suspended operations and recalled all of the products from the facility that had yet to expire. In fact, officials from FDA also visited this facility for the same reason, recently. Sluggishness in this unit is likely to hamper the company’s specialty distribution segment over the long haul.

In the first quarter of fiscal 2018, the segment's results were marred by PharMEDium, wherein the company reportyed lower-than-expected revenues and profit contribution. Per management, PharMEDium's contribution to adjusted EBIT and EPS in fiscal 2018 will be lower than expected, due to certain ongoing incremental expenses.

AmerisourceBergen operates in a highly-competitive pharmaceutical distribution and related health care services market. The company’s primary competitors include Cardinal Health, McKesson along with national generic distributors and regional distributors.

Time to Offload?

Considering these headwinds, investors might find it to be the right time to dump AmerisourceBergen.

In this regard, our VGM Style Score model can turn out to be helpful. This is a comprehensive tool that helps investors screen winning stocks from the broader sectors. Further, the score highlights the determining elements in a stock that can drive it higher.

Unfortunately, AmerisourceBergen has a VGM Style Score of D, indicating it as one of the worst performing stocks in the MedTech space, at least for now.

In fact, our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential.

Key Picks

A few better-ranked players in the broader medical sector are Bio-Rad Laboratories BIO, Abaxis, Inc. ABAX and Edwards Lifesciences Corporation EW.

Bio-Rad Laboratories sports a Zacks Rank of #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a long-term expected earnings growth rate of 20%.

Abaxis, a Zacks Rank #2 stock, has a long-term earnings growth rate of 5.1%.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.1%. The stock has a Zacks Rank of #2.

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