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AmerisourceBergen: A Good 'Buy' Candidate for 2012

March 13, 2012 | About:

As a drug distributor, AmerisourceBergen (NYSE:ABC) should continue to grow at a steady pace, maybe even with a slight acceleration of growth as the population continues to age. Knowing that it is a steady, slow growth, predictable business reveals a lot about the company. This suggests that it should be on everyone’s buy list at the right price because of the defensive nature of the drug distribution business. However, at these prices, the stock is close to being fairly valued. A forward P/E ratio of 12.2 is about right maybe even a bit high for the stock. A pull back of 20% would make this a solid opportunity with upside of 30-40%. Below are the valuation metrics and top stock holders of the stock.

AmerisourceBergen's trailing five-year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the two valuation metrics compared to their five-year averages. AmerisourceBergen's current P/B ratio is 3.5 and it has averaged 2.7 over the past five years with a high of 3.5 and low of 1.8. AmerisourceBergen's current P/E ratio is 14.9 and it has averaged 17 over the past five years with a high of 30.8 and low of 11.1.

The consensus price target for the analysts who follow AmerisourceBergen is $45. That is upside of 17% from today's stock price of $38.6 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

The forward valuation breakdown is here: AmerisourceBergen is currently trading at about $39 a share with analysts expecting EPS of $3.17 next year, an earnings increase of 13% year over year, for a forward P/E ratio of 12.2. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. McKesson (NYSE:MCK) is currently trading at about $81 a share with analysts expecting EPS of $7.1 next year, an earnings increase of 12% year over year, for a forward P/E ratio of 11.5.

Cardinal Health (NYSE:CAH) is currently trading at about $42 a share with analysts expecting EPS of $3.54 next year, an earnings increase of 11% year over year, for a forward P/E ratio of 11.8. The mean forward P/E of AmerisourceBergen's competitors is 11.6 which suggests that AmerisourceBergen is fairly valued relative to its publicly traded competitors.

According to the DCF model provided by Dividend Kings, AmerisourceBergen is worth $44 a share versus its current stock price of $38.6 a share. This suggests that the stock is fairly valued.

The top two funds that own AmerisourceBergen are FMI Large Cap, which owns 4.2 million shares or 1.62% of the shares outstanding, and Columbia Value & Restructuring Z, which owns 3.9 million shares or 1.51% of the shares outstanding. The top two institutions that own AmerisourceBergen are Vanguard Group Inc., which owns 15.5 million shares or 5.99% of the shares outstanding, and State Street Corp/, which owns 10.2 million shares or 3.9% of the shares outstanding.

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GuruFocus has detected 3 Warning Signs with AmerisourceBergen Corp $ABC.
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