ABC -- Amerisource Bergen

[lincolnc]

Any one have any insight about these distributors?  Have pulled back DRAMATICALLY in price over past few months.

 

MCK -- McKesson

CAH -- Cardinal Health

 

See below from Morningstar

http://analysisreport.morningstar.com/stock/research/c-report?t=XNYS:ABC&region=usa&culture=en-US&productcode=MLE&cur=

 

[Phaceliacapital]

Do you think they are in the right place in the pharma value chain?

[antao]

We analyzed the company last year but it went into the too hard pile. Tough company to analyze with a reasonable degree of confidence because of their very low operating margins and choppy financials. Back then we concluded that we would need the stock to sell below $45 before even considering making an investment.

[Spekulatius]

We analyzed the company last year but it went into the too hard pile. Tough company to analyze with a reasonable degree of confidence because of their very low operating margins and choppy financials. Back then we concluded that we would need the stock to sell below $45 before even considering making an investment.

 

The margin in the distribution business is very slim. I hVe owned CAH (a competitor) a few years back and the distributors were getting squeezed on the margins then. It also seemed to me, that they were dependent on price increases to make their margin, as they often stockpiled drugs before announced price increases and that way gained incremental margins. At that time, the price increases became smaller, and margins of the distributors took a hit.

I think the distributors may be overearnings right now, but I have not looked at the current situation in detail.

[DooDiligence]

We analyzed the company last year but it went into the too hard pile. Tough company to analyze with a reasonable degree of confidence because of their very low operating margins and choppy financials. Back then we concluded that we would need the stock to sell below $45 before even considering making an investment.

 

The margin in the distribution business is very slim. I hVe owned CAH (a competitor) a few years back and the distributors were getting squeezed on the margins then. It also seemed to me, that they were dependent on price increases to make their margin, as they often stockpiled drugs before announced price increases and that way gained incremental margins. At that time, the price increases became smaller, and margins of the distributors took a hit.

I think the distributors may be overearnings right now, but I have not looked at the current situation in detail.

 

Generic deflation has been a small headwind but branded inflation is helping.

 

I like ABC even with the dilution from the warrants to WBA for their 16% ownership in ABC (kind of a big ownership stake for not a ton of cash but the new business will be fat over the next decade) & I think WBA winds up owning them hopefully at a higher price.

 

They seem like responsible managers & have returned a lot of cash to owners ($10B in buybacks & $1.3B in dividends.)

 

I think these wholesalers will wind up a part of something bigger & ABC looks easily digestible.

 

Should PBM’s be a part of distribution, supply & logistics or payment systems? (does anyone else 2nd guess & justify things by making the 3rd leg of your thesis M & A?)

[DooDiligence]

https://www.moodys.com/research/Moodys-rates-AmerisourceBergens-2027-and-2047-senior-unsecured-notes-at--PR_375753

[DooDiligence]

Ouch

 

https://www.justice.gov/usao-edny/pr/amerisourcebergen-corp-pay-625-million-settle-civil-fraud-allegations-resulting-its

[DooDiligence]

Top 5 healthcare fraud settlements of 2018.

 

ABC is #1 and Davita made #3 on the list.

 

https://www.healthleadersmedia.com/top-5-healthcare-sector-fraud-settlements-2018

 

I expect CVS/Aetna to hit the #1 spot for 2019.