Cencora Earnings: Ends 2023 With Solid Results and Expects Another Successful Year

Narrow-moat Cencora COR, formerly known as AmerisourceBergen, reported solid fourth-quarter results that were above our expectations, wrapping up fiscal 2023 on good footing. Total quarterly sales were up 12.7% year over year as demand for specialty products and GLP-1 medications (for diabetes and weight loss) continue to boost sales. Management also provided healthy guidance for fiscal 2024; it expects U.S. healthcare revenue to be up 7%-10% for the full year, international healthcare to be up 4%-8%, and adjusted diluted EPS to grow roughly 6%-8% despite lowered contributions from COVID-19-related items. After baking in these numbers and rolling our cash flow model, we are raising our fair value estimate to $176 per share from $162.

U.S. healthcare solutions was up 13.0% year over year as utilization trends remain strong. A notable driver during the quarter was once again GLP-1s, which made up roughly 300 basis points of growth by themselves. As we have noted for other pharmaceutical distributors we cover, we think the growth in GLP-1s is a double-edge sword, since the drugs boost the top line but also carry thin margins and weigh down the bottom line. Cencora discussed a number of higher-margin services it offers to manufacturers, retailers, and pharmacists that could offset some of the margin losses, but the outsize headwinds from GLP-1s have masked those results in recent quarters. We expect a similar trend for the near term.

International healthcare was up 9.5%, thanks to a healthy performance from the global specialty logistics business. PharmaLex, which Cencora acquired at the beginning of the year, continues to show nice growth through consumer penetration and geographic expansion. These services are higher-margin compared with Cencora’s base drug distribution business, so opportunistic investments in the business and successful execution could be margin-accretive over the long term.