BofA Securities has revised its stance on Cencora Inc (NYSE: COR), reducing the price target to $245 from the previous $275.
Concurrently, the firm downgraded the stock from a Buy to a Neutral rating. The adjustment follows a period of reassessment of the drug distribution industry's growth and competitive dynamics.
The analyst from BofA Securities noted that while the end markets for drug distribution had been stable and received a boost from COVID-related tailwinds, the industry is now entering a phase of normalization.
The shift brings into question the ability of Cencora to maintain its double-digit earnings per share (EPS) growth over the coming years.
Cencora's recent performance has been influenced by COVID-19 comparables, which are now seen as a headwind. Additionally, the company's relationships with its two largest customers, Walgreens (WBA) and Cigna (NYSE:CI), are undergoing changes that might create further uncertainty for the company. According to the analyst, these evolving partnerships could act as an overhang on the stock.
In other recent news, Cencora reported strong financial performance for its fiscal 2024 third quarter with revenue surpassing $74 billion, an 11% increase year-over-year, and adjusted diluted earnings per share (EPS) rising by 14% to $3.34.
It led to an upward adjustment in the full-year outlook. In addition, Baird, a financial services company, revised its price target for Cencora to $283 from $287, while maintaining its 'Outperform' rating, following Cencora's updated fiscal year 2025 initial outlook and the extension of its distribution contract with Evernorth into 2029.
TD Cowen reiterated a Buy rating and a $271.00 price target for Cencora's stock, indicating that the exclusion of the branded drug Humira from Evernorth's commercial formulary starting in 2025 would have a negligible effect on Cencora's adjusted earnings per share (EPS) for fiscal year 2025. The firm also emphasized the larger opportunities for distributors in the biosimilar market.
Cencora has also announced the appointment of Frank Clyburn, former CEO of International Flavors and Fragrances Inc. and Executive Vice President at Merck, as an independent director to its Board of Directors.
InvestingPro Insights
The recent downgrade of Cencora Inc by BofA Securities reflects the complex landscape the company is navigating. In light of this, a look at some key metrics and InvestingPro Tips can provide a broader perspective on the company's position. Cencora's market capitalization stands at a robust $45.97 billion, and while it trades at a high P/E ratio of 25.27, the adjusted P/E ratio for the last twelve months as of Q3 2024 indicates a slightly lower figure of 21.66. This suggests a potential recalibration of its earnings multiple as the market adjusts to the company's growth prospects.
Furthermore, Cencora has demonstrated commendable revenue growth of 11.56% over the last twelve months as of Q3 2024. This growth is a testament to the company's ability to expand its revenue streams despite the challenges in the drug distribution industry. Additionally, while the company's gross profit margin stands at 3.37%, reflecting certain pressures on profitability, it is important to note that Cencora has maintained dividend payments for 24 consecutive years, highlighting its commitment to shareholder returns.
An InvestingPro Tip worth mentioning is that management has been aggressively buying back shares, which could be a sign of confidence in the company's valuation and future prospects. Moreover, the company is a prominent player in the Healthcare Providers & Services industry, which may provide it with a strategic advantage in navigating industry headwinds. For investors looking for more insights, there are 19 additional InvestingPro Tips available on the platform, offering a deeper dive into Cencora's financial health and market position.
Overall, while the industry faces a period of normalization and Cencora Inc deals with its own set of challenges, the company's financial data and strategic moves suggest it is taking steps to position itself favorably for the future.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.