The Big Three U.S. drug distributors: McKesson (NYSE:MCK), AmerisourceBergen(NYSE:ABC) and Cardinal Health (NYSE:CAH) — should see decent growth in coming quarters thanks to favorable macro trends, including a rise in the number of insured Americans under ObamaCare, according to a series of new reports from RBC Capital Markets.
RBC analyst David Francis initiated coverage on all three stocks at an “outperform” rating.
Writing about AmerisourceBergen — the No. 2 drug distributor by revenue and No. 3 by market cap — Francis said, “Utilization trends in the U.S. health care system are poised to rebound from a very soft five-year period as economic growth is finally gaining traction and the Affordable Care Act” — AKA ObamaCare — “creates an environment in which a greater number of individuals are covered by insurance and seek treatment.”
These trends, combined with “marginal generic price inflation seen in recent quarters,” should have a positive effect on drug use and benefit the entire supply chain, Francis added.
McKesson ranks No. 1 in annual revenue and market cap among the Big Three, while Cardinal ranks No. 2 in market cap and No. 3 in revenue. Combined, the three control more than 90% of the U.S. drug distribution market.
AmerisourceBergen is due to report results on Oct. 30 for its fourth quarter of fiscal 2014. Analysts polled by Thomson Reuters expect it to log full-year revenue of $118.8 billion, up 35% from fiscal 2013. That would be its biggest gain in at least a decade.
In contrast, McKesson posted a 13% fiscal 2014 revenue gain to $137.6 billion, while Cardinal logged a 10% decline to $91.1 billion.
All three stocks are part of IBD’s Medical-Wholesale Drug/Supply group, which ranks No. 61 of 197 industries that IBD tracks. AmerisourceBergen is the top stock in the group with a Composite Rating of 97. McKesson has a Composite Rating of 96, while Cardinal’s rating is 68.
Date: October 17, 2014