ModernGraham Annual Valuation Of Amerisource Bergen

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method, one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Amerisource Bergen (NYSE:ABC) fares in the ModernGraham valuation model.

ABC Chart

ABC data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $65.59
MG Value $76.76
MG Opinion Fairly Valued
Value Based on 3% Growth $40.82
Value Based on 0% Growth $23.93
Market Implied Growth Rate 7.40%
Net Current Asset Value (NCAV) -$10.07
PEmg 23.30
Current Ratio 0.96
PB Ratio 6.73

Balance Sheet - 12/31/2013

Current Assets $15,228,300,000
Current Liabilities $15,828,900,000
Total Debt $1,396,800,000
Total Assets $19,796,100,000
Intangible Assets $3,501,300,000
Total Liabilities $17,548,300,000
Outstanding Shares 230,490,000

Earnings Per Share

2014 (estimate) $3.65
2013 $2.10
2012 $2.76
2011 $2.54
2010 $2.22
2009 $1.69
2008 $1.45
2007 $1.32
2006 $1.13
2005 $0.68
2004 $0.99

Earnings Per Share - ModernGraham

2014 (estimate) $2.82
2013 $2.35
2012 $2.36
2011 $2.06
2010 $1.73
2009 $1.41

Dividend History

ABC Dividend Chart

ABC Dividend data by YCharts


Amerisource Bergen is not suitable for either the Defensive Investor or the Enterprising Investor at this time. For the Defensive Investor, the company's current ratio is too low, and it is trading at high PEmg and PB ratios. For the Enterprising Investor, the company has too much debt relative to its current assets. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should explore other opportunities. From a valuation perspective, the company appears to be fairly valued, having grown its EPSmg (normalized earnings) from $1.73 in 2010 to an estimated $2.82 for 2014. This level of demonstrated earnings growth supports the market's implied estimate of 7.40% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the market price.

Disclaimer: The author did not hold a position in Amerisource Bergen or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

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