On Wednesday, Baird, a global financial services firm, adjusted its share price target for Cencora Inc (NYSE: COR), a company listed on the New York Stock Exchange. The price target was increased to $280 from the previous target of $277, while the firm sustained an Outperform rating on the stock.
The adjustment comes as Baird's analyst employed a combination of valuation methodologies, including price-to-earnings (P/E), discounted cash flow (DCF), and enterprise value to EBITDA (EV/EBITDA) analyses.
The analysis incorporated near-term and five-year forecasts, with the long-term projections suitably adjusted for time and risk factors.
The firm applied a 17.5 times multiple for its one-year, two-year, and long-term P/E analysis. For the DCF calculation, Baird used an approximate 8% weighted average cost of capital (WACC) and a 2.0% terminal growth rate. In the EV/EBITDA approach, a 12.5 times multiple was applied to the next twelve months (NTM) forecast.
Baird's analyst also highlighted several risks associated with Cencora's business, which include customer concentration, with significant clients such as Walgreens Boots Alliance (NASDAQ:WBA) and Cigna/Express Scripts.
Additionally, the analyst noted the potential impacts of opioid litigation, although the risk is significantly reduced following a global settlement.
Other factors that could influence the company's performance include possible changes in drug pricing policy, shifts in market sentiment, challenges with acquisition integration, and the company's substantial international exposure, which is unique compared to its peers. The report also mentions general sector risks that could affect the company's future performance.
The new price target reflects Baird's confidence in Cencora's performance and its risk-adjusted growth prospects over the coming year.
InvestingPro Insights
Baird's optimistic outlook on Cencora Inc is echoed by some of the real-time metrics and InvestingPro Tips. With a solid market capitalization of $42.58 billion and a P/E ratio standing at 23.39, Cencora is trading at a premium relative to its near-term earnings growth. However, this premium may be justified by the company's consistent performance, as it has raised its dividend for 19 consecutive years, showcasing a reliable return to shareholders. The recent revenue growth of 11.71% over the last twelve months as of Q2 2024 indicates a strong upward trajectory in the company's sales.
InvestingPro Tips also highlight that Cencora operates with a moderate level of debt and has been able to maintain its dividend payments over an impressive span of 24 years. Additionally, the company's stock trades with low price volatility, which could appeal to risk-averse investors. While there are concerns over weak gross profit margins and the fact that short-term obligations exceed liquid assets, Cencora's cash flows can sufficiently cover interest payments, suggesting financial resilience.
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