Yahoo Finance Reasons to Hold Cencora (COR) Stock in Your Portfolio for Now
Cencora, Inc. COR is well-poised for growth on the back of robust U.S. Healthcare Solutions business and product launches. However, intense competition is a concern.
Shares of this Zacks Rank #3 (Hold) company have risen 16.1% year to date compared with the industry’s 4.8% growth. The S&P 500 Index has risen 14.6% in the same time frame.
Cencora is one of the world’s largest pharmaceutical service companies, focused on providing drug distribution and related services to reduce healthcare costs and improve patient outcomes. The company has a market capitalization of $47.74 billion.
COR’s bottom line is anticipated to improve 10.7% over the next five years. Its earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 6.12%.
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What’s Driving Growth?
Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to medical care, enhanced economic conditions and population demographics are likely to favor the segment in the upcoming quarters.
In the second quarter of fiscal 2024, revenues at U.S. Healthcare Solutions totaled $61.3 billion, up 8.1% year over year. The company continues to witness a strong segmental performance due to growth in all markets and strong demand for specialty products, especially GLP-1 drugs. High demand for the recently approved GLP-1 drugs for diabetes and/or weight loss is likely to continue going forward.
Segmental operating income amounted to $841.1 million, up 11.2% year over year. Higher gross profit (including fees earned from the distribution of government-owned COVID-19 treatments and a gross profit on sales from specialty physician practices) contributed to the upside.
Revenues at the U.S. Healthcare Solutions segment are expected to grow 11-13% for fiscal 2024. Operating income is anticipated to increase 10-12% during the same time frame.
Also, Cencora is expected to benefit from generics growth in the long run, raising investors’ optimism. It is well-positioned to help ensure the smooth entry of its products into the market. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to care, better economic conditions and population demographics, introduction of new innovative drugs like hepatitis C drugs and a continued good brand pricing environment should aid. Moreover, the company’s focus on specialty drugs bodes well.
In May, Cencora announced that it has agreed to repurchase shares of its common stock from Walgreens Boots Alliance Holdings LLC for approximately $400 million in a private transaction. The company also raised its fiscal 2024 guidance for adjusted earnings per share (EPS), which is now estimated to be in the range of $13.35-$13.55 (previously $13.30-$13.50). The uptick reflects a lower weighted average diluted share count, partially offset by higher net interest expense due to lower investment balances of cash being used for share repurchases. COR estimates revenues to grow 10-12% year over year. Total adjusted operating income is expected to improve 9-11% during the same time frame.
Cencora’s multinational distribution footprint and global platform of commercialization services make it a natural partner for manufacturers bringing their products to market. With the company’s increasing presence in pharma services, it is able to cultivate relationships with pharma companies during the early development process and position itself as not only a provider of logistics and distribution services but also as an integrated partner for supporting the successful commercialization of its products. These factors are likely to have favored the stock’s growth.
What’s Hurting the Stock?
Cencora operates in a highly competitive pharmaceutical distribution and related healthcare services market. The generic industry is facing consolidation of customers and manufacturers, global competitors and regulatory challenges.
The company encounters additional competition from manufacturers, chain drugstores, specialty distributors, and packaging and healthcare technology companies. The increasing competition is likely to affect its business.
Estimate Trend
COR has been witnessing a positive estimate revision trend for fiscal 2024. In the past 60 days, the Zacks Consensus Estimate for earnings has increased from $13.43 per share to $13.44.
The consensus mark for second-quarter fiscal 2024 revenues is pegged at $73.57 billion, indicating a 9.9% improvement from the year-ago quarter’s reported actuals. The bottom-line estimate is pinned at $3.19, implying year-over-year growth of 9.3%.
Cencora, Inc. Price
Cencora, Inc. price | Cencora, Inc. Quote
Key Picks
Some better-ranked stocks in the broader medical space are DaVita Inc. DVA, ResMed RMD and Hologic HOLX.
DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 13.6%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 29.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DaVita’s shares have risen 36.4% compared with the industry’s 9.3% growth year to date.
ResMed, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 13.2% in 2024. Its earnings surpassed estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 2.81%.
RMD’s shares have risen 6.9% year to date compared with the industry’s 2.8% growth.
Hologic, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 7.4%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 4.94%.
Hologic’s shares have risen 0.3% year to date compared with the industry’s 4.7% growth.
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Cencora, Inc. (COR) : Free Stock Analysis Report
