Amerisourcebergen: A Healthy Long Term Investment

Amerisourcebergen (NYSE: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 (NYSE:MRK) and Pfizer (NYSE: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 (NYSE:CVS) merger, since neither one is a major customer.
-Good Sponsorship: Pzena Investment, Goldman Sachs (NYSE: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.