Summary
- AmerisourceBergen is one of the leading drug distributors with a strong balance sheet and a broad customer base.
- The company has shown resilience during COVID-19 with operational flexibility, and has growth tailwinds through increased healthcare spend over the next decade.
- In this article, I intend to evaluate the company from a fundamental perspective, and make a recommendation.
With the ever-changing pace of technology, it seems that many industries are always having to change and reinvent themselves. With this in mind, I believe it’s prudent to have a certain allocation in one’s portfolio to so-called “boring” companies that provide stability and growth. These companies don’t provide much excitement in way of being the focus of conversations at dinner parties, but there is nothing boring about the steady profits that they can generate for one’s portfolio. In addition, many of these companies have resilient business models that enable them to weather adversity.
The company that I’m focused on today, AmerisourceBergen (ABC), fits this bill for today’s article. I intend to examine the company from a fundamental perspective, and make a recommendation, so let’s get started.
(Source: Wypages)
A Mission-Critical Operation
AmerisourceBergen is the second largest of the “Big 3” drug distributors, sitting just behind the leader McKesson (MCK). It serves as a key link in the pharmaceutical supply chain by connecting drug manufacturers to sites of care, including healthcare systems, clinics, pharmacies, veterinary practices, and livestock producers. It has 150+ offices worldwide, 22 thousand employees, and ships over four million products per day.
As one of the leading players in its industry, AmerisourceBergen is in a position to ride the wave of expanding healthcare spend over the next decade. According to CMS, national healthcare spend is projected to grow at an average rate of 5.5% per year through 2027 and reach $6.0 trillion by 2027. This puts healthcare spend on pace to grow at 0.8 percentage point faster than the U.S. GDP, resulting in 1 in 5 dollars of the GDP being healthcare-related within a decade.
