Amerisourcebergen: A Healthy Long Term Investment

Amerisourcebergen (ABC) is a large drug distributor formed five years ago from the merger of Amerisource and Bergen Brunswick.

Health care looks to be a good long term investment area over the next decade because of the aging of the baby boomers. But pharmaceutical firms like Merck (MRK) and Pfizer (PFE) have high litigation risk, and most biotech firms are very high risk and seem overvalued.

Amerisourcebergen is consistently profitable and generates steady consistent cash flows.

ABC has a market cap of $10 Billion and could easily be acquired by a private equity firm who would be attracted to their steady consistent earnings, revenue and cash flow generation.

-Recent analysts earnings forecasts have increased.
-I like ABC’s “roll-up” strategy. They recently acquired two smaller firms- Bellco Health (in New York) and Xcenda (in Florida).
-ABC plans to spin-off their PharMerica LTC unit. I like to buy into pre-spinoff situations.
-ABC is not negatively impacted by the Caremark/CVS (CVS) merger, since neither one is a major customer.
-Good Sponsorship: Pzena Investment, Goldman Sachs (GS)

Catalysts or "triggers" that could cause an above average price increase:

- The upcoming spinoff of the PharMerica LTC unit.
- A private equity buyout offer.
- Unexpectedly good earnings at the next earnings call on April 25.

ABC is not particularly depressed now. I think it is a decent value at 54. However I would prefer to buy it on a price dip to 50 or below.

Full Disclosure: I do not currently own ABC, but I have it on my watch list and am considering a purchase on a price dip.