US And European 3PL Integration Will Advance Pharmaceutical Networks

Key Takeaways

• Strengthened position in specialty medications and logistics integration is boosting global reach and revenue growth.
  
• Strategic stakeholder engagement and investment in analytics are likely improving margins and earnings stability.
  
• International market challenges, interest expenses, and foreign exchange risks may limit operating income, profitability, and shareholder value in the short term.

Catalysts

Cencora, Inc. sources and distributes pharmaceutical products in the United States and internationally.

• Cencora's strengthened position in specialty medications, with deepening offerings across provider channels globally, is likely to boost revenue growth as they capitalize on new pharmaceutical innovations and market trends.
  
• The integration of U.S. and European 3PL businesses is enhancing Cencora's pharmaceutical logistics offerings and multinational reach, which could drive successful product launches and positively impact revenue and earnings.
  
• Strategic relationships and active engagement with stakeholders, such as community oncologists and pharmacists, are expected to help Cencora better anticipate customer needs and potentially improve margins through optimized services.
  
• Continued investments in advanced analytics and data insights, supporting pharmacy networks in addressing care gaps and uncovering new opportunities, are likely to enhance both revenue and net margins.
  
• The planned deleveraging of the company following the Retina Consultants of America acquisition, alongside a focus on core U.S. operations, suggests potential for increased earnings stability and enhanced free cash flow in the longer term.

Cencora Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cencora's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 0.8% in 3 years time.
• Analysts expect earnings to reach $2.9 billion (and earnings per share of $16.51) by about May 2028, up from $1.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $2.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.5x on those 2028 earnings, down from 40.4x today. This future PE is greater than the current PE for the US Healthcare industry at 19.7x.
• Analysts expect the number of shares outstanding to decline by 2.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Cencora Future Earnings Per Share Growth

Risks

• International segment facing market softness and clinical trial activity remains subdued, potentially impacting operating income growth. This could impact earnings and margin expansion.
  
• Increased net interest expense due to recent financing activities, which might affect net earnings as higher interest payments reduce profitability.
  
• Exposure to fluctuations in foreign currency exchange rates and potential negative effects from tariffs could affect revenue and profitability, especially in international markets.
  
• The company is not expecting to repurchase shares until further deleveraging, potentially limiting return on equity and shareholder value in the short term.
  
• Revenue guidance suggests growth at the bottom end of the range, influenced by factors such as GLP-1 comparison effects and biosimilar competition, which could restrict revenue growth potential.

Valuation

• The analysts have a consensus price target of $297.489 for Cencora based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $335.0, and the most bearish reporting a price target of just $242.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $376.5 billion, earnings will come to $2.9 billion, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $290.81, the analyst price target of $297.49 is 2.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.