Current Price: ~ $36/share

Projected Yield: ~ 1.44%

AmerisourceBergen is one of three national pharmaceutical distributors. The company's activities include procurement, packaging, inventory management, reimbursement consulting, physician education, and logistics services. AmerisourceBergen is a leader in specialty distribution and is the largest distributor of oncology drugs in the United States.

Estimated WACC for the firm today is 8.02% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year | FCF $Millions |

2002 | 472 |

2003 | 264 |

2004 | 636 |

2005 | 1323 |

2006 | 694 |

2007 | 1090 |

2008 | 600 |

2009 | 638 |

2010 | 924 |

2011 | 1000 |

TTM | 1533 |

Average Annual Growth FCF: ~ 25%

CAGR FCF: ~ 9%

Consensus Forecast Industry 5-Year Growth: ~ 18% per year

Consensus Forecast Company 5-Year Growth: ~ 13% per year

Internal Growth Rate: ~ 4%

Sustainable Growth Rate: ~ 25%

**Scenario 1**

Average FCF (2011, 2010, 2009) is $854 million

- Start at $854 million FCF
- Assume a 5-year growth rate in FCF of 13% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 854 |

1 | 965 |

2 | 1090 |

3 | 1232 |

4 | 1392 |

5 | 1573 |

Terminal Value | 22174 |

The firm's future cash flows, discounted at a WACC of 8.02%, give a present value for the entire firm (Debt + Equity) of $19977 million. If the firm's fair value of debt is estimated at $2079 million, then the fair value of the firm's equity could be $17898 million. $17898 million / 258 million outstanding shares is approximately $69 per share and a 20% margin of safety is $55/share.

**Scenario 2**

All else being equal,

- Assume a 5-year growth rate in FCF of 6% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 854 |

1 | 905 |

2 | 960 |

3 | 1017 |

4 | 1078 |

5 | 1143 |

Terminal Value | 15108 |

- Present Value of the entire firm (Debt + Equity): $14310 million
- Value of Equity: $12231 million or $47/share
- 20% margin of safety is $38/share

Sources

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.