Is AmerisourceBergen (ABC) Poised For A Beat In Q1 Earnings?

AmerisourceBergen Corp.’s (NYSE:ABC) first-quarter fiscal 2018 results, scheduled for release on Feb 6, are expected to show steady growth in the pharmaceutical distribution segment, a significant contributor to revenues.

Last quarter, the company posted a positive earnings surprise of 0.8%. AmerisourceBergen has outperformed the Zacks Consensus Estimate in all of the preceding four quarters, the average beat being 4.6%. Let’s take a look at how things are shaping up prior to this announcement.

AmerisourceBergen’s earnings in the preceding quarter surpassed the Zacks Consensus Estimate, courtesy of strong growth in Consulting Services, MWI Animal Health and World Courier businesses. Revenues rose almost 4.2% from the year-ago quarter.

AmerisourceBergen Corporation (Holding Co) Price and EPS Surprise

AmerisourceBergen Corporation (Holding Co) Price and EPS Surprise | AmerisourceBergen Corporation (Holding Co) Quote

The Zacks Consensus Estimate for the Pharmaceutical Distribution segment stands at $38.74 billion for the quarter under review. This reflects an improvement of almost 5.9% from the year-ago quarter.

Other Factors to Consider

AmerisourceBergen’s Specialty Group performed impressively over the recent past with revenues rising 10.3% year over year in the last-reported quarter. The upside can be attributed to strong oncology product sales and solid performance by third-party logistics businesses. These factors are expected to play a pivotal role in boosting the segmental revenue in the first quarter as well.

Other segment (this segment includes AmerisourceBergen Consulting Services, World Courier and MWI Veterinary Supply) also performed well in the last quarter. Revenues at the segment were up 12.2% on a year-over-year basis, driven by a record number of shipments in World Courier and strong volume and revenue growth at MWI. This segment is expected to maintain the performance in the quarter to be reported.

Meanwhile, the Zacks Consensus Estimate for AmerisourceBergen’s first quarter earnings stands at $1.35 per share, down a penny year over year. The company expects EPS growth in the second half of fiscal 2018 to be much better than the first half, courtesy of benefits from the gradual onboarding of the Walgreens Rite Aid stores.

The company also expects a slight rise in tax rate in fiscal 2018 as it had seen one-time benefits from R&D tax credits in fiscal 2017.

Although generic inflation has been nominal, the rate of deflation is rising gradually. These factors, combined with an anticipated shift in product mix toward lower-margin and higher-priced specialty and branded drugs along with lack of generic inflation, will affect the company’s bottom line.

The temporary slowdown in the PharMEDium segment is expected to mar AmerisourceBergen's bottom line in the first quarter. Notably, the company aims to boost its investments to enhance PharMEDium's quality assurance (QA) and quality control (QC) systems in terms of product quality and patient safety. Although this lends the company a competitive edge, it might affect the bottom line in first-quarter fiscal 2018.

Here is what our quantitative model predicts:

AmerisourceBergen has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for AmerisourceBergen is +1.50%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AmerisourceBergen carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Bio-Rad Laboratories (NYSE:BIO) has an Earnings ESP of +4.45% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics (NASDAQ:MYGN) has an Earnings ESP of +0.42% and a Zacks Rank #3.

Henry Schein (NASDAQ:HSIC) has an Earnings ESP of +0.09% and a Zacks Rank #3.

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