Pharma Distributors Good Investments (CAH, MCK, ABC)?


By Integer Investments

Today we talk about drug distributors. We will focus on three stocks: Cardinal Health (CAH), McKesson (MCK) and AmerisourceBergen (ABC). These stocks have lost between 20% and 30% of their value in 2016.

Which one to buy?

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Three companies are interesting in this space: Cardinal Health, McKesson and AmerisourceBergen. All three companies offer health care services and products worldwide. They also offer services such as inventory management, data reporting, new product launch support and contract pricing and chargeback administration services to pharmaceutical manufacturers, in addition to several other services to other health care providers.


Based on our own valuation model, we estimate the fair price of the three companies as follows:

  • AmerisourceBergen: $127 per share (38% discount)
  • McKesson: $209 per share (33% discount)
  • Cardinal: $106 per share (32% discount)

Also in terms of EV/EBITDA, valuations are similar (8X for Cardinal and 7.5X for McKesson and AmerisourceBergen). A decision based on valuation cannot really be made with regard to the best stock to buy.


Based on multiple valuation models, AmerisourceBergen, McKesson and Cardinal are discounted by approximately 30%. We believe that three strategies are possible, depending on the level of risk that an investor is comfortable with:

  • Lower risk/reward: buy all three companies
  • Average risk/reward: Buy Cardinal. Cardinal seems to be the most stable and least volatile of the three, and its margins offer a better protection.
  • Higher risk/reward: Buy either AmerisourceBergen or McKesson.

A full version of this article can be found here.

Disclosure: Integer Investments is long ABC.

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