Friday, August 10, 2007

AmerisourceBergen (NYSE:ABC): Actionable call alert!

- Baird is out with an interesting call on AmerisourceBergen (NYSE:ABC) saying they have placed the stock to their Focus List, List, believing it the single best near-term investment opportunity in their coverage universe. Their rating is Outperform with a tgt of $60.

According to Baird large cap healthcare distributors avoid many perils concerning the Market - these arenon-cyclical, defensive firms, avoiding direct consumer-, reimbursement- and much binary product risk, while being relatively unaffected by commodity prices, currency moves, monetary policy, or foreign political activity.

Market worries about fund rotation and position unwinding are temporary, technical events. Money flows may seek high-quality, defensive stocks with clean balance sheets, reduced capital needs, and attractive valuation.

ABC trades at 16.9x, 14.5x CY07, CY08 EPS from continuing operations. Firm expects a rally into the seasonally-strong March quarter, aided by reduction in (and traction from) near-term investments and another impending generics wave.

With 75% of analysts rating ABC Hold or Sell, but the lowest published price target 15% above current valuation, they suggest the Market isn't paying attention, expectations risk low, and at 14x CY08E, an upgrade wave may be looming, with the opportunity for substantial NTM equity returns.

Notablecalls: Oh my, goosebumps again! This call is a thing of beaty. ABC stock has gotten hit lately after posting somewhat weaker than expected results on July 26. Management did however raise the upper end of fiscal-year EPS guidance and told investors they would accelerate the current buyback, buying back about 5.4 million shares of its common stock from Bank of America Corp at an average price of around $46. The quarterly miss was due to lower than expected performance at PharMerica (PMC) pharmacy unit, which handles long-term care and workers compensation. Yet, now it has spinned off the PharMerica unit, combining it with a similar division of Kindred Healthcare (KND). The detractor is gone, allowing management to fully focus on the core business.

I love how Baird hilights the fact 75% of analysts rate ABC Hold or Sell. Shows you where the expectations are. Yes, there are some risks (less generic launches, lower dosing for anemia drugs) but at current levels these seem priced in.

I'm going to call this one Actionable! I suspect this call has the power to move ABC for several days or even a week. While I usually refrain from including a target on my calls, I think in ABC's case $46, the price at which management was willing to buy a large chunk of their stock back, makes sense here as a s-t tgt.


JJ2000426 said...
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JJ2000426 said...
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