AmerisourceBergen (ABC) Q3 Earnings: Will It Disappoint?

AmerisourceBergen Corporation (NYSE:ABC) is set to report fourth-quarter and fiscal 2016 results on Nov 2, before the opening bell.

AmerisourceBergen’s track record has been quite impressive, with the company comfortably beating estimates in three of the four trailing quarters. In the last reported quarter, it recorded a positive earnings surprise of 8.73%, bringing the four-quarter average to 3.79%.

Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

AmerisourceBergen’s pharmaceutical distribution segment continues to face headwinds in the form of contract renewals and lower generic inflation. The AmerisourceBergen Drug Corporation (ABDC) business is also being hurt by several factors, including accelerating deflation of generic drugs and lower contribution from generic launches. Although generic inflation has been nominal, the rate of deflation is rising gradually. These factors, combined with an anticipated shift in product mix toward lower-margin and higher-priced specialty and branded drugs, and the lack of generic inflation, will adversely impact the bottom line. Moreover, incremental expenses related to some key investments in the company’s information technology systems and infrastructure are expected to dampen growth in the near term.

However, the company renewed its relationship with the largest health systems customer for an additional five years in the second quarter and has been making persistent efforts on addressing the headwinds in ABDC.segment. This can boost the top-line to an extent in the fourth quarter.

We also remind investors that at the third quarter conference call, AmerisourceBergen raised its earnings guidance for the fiscal 2016, to the range of $5.52–$5.57 from the previous projection of $5.44–$5.54.

What Our Model Indicates

Our proven model does not conclusively show that AmerisourceBergen is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. Unfortunately, that is not the case, as you will see below.

Zacks ESP: The Earnings ESP for AmerisourceBergen is -0.82%, as the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.21 and $1.22, respectively. Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.

Zacks Rank: AmerisourceBergen carries a Zacks Rank #4. As it is, we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a few companies that you may want to consider instead, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Ariad Pharmaceuticals Inc. (NASDAQ:ARIA) is expected to report earnings on Nov 1.The company has an Earnings ESP of +5.26% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

ImmunoGen, Inc. (NASDAQ:IMGN) has an Earnings ESP of +5.41% and a Zacks Rank #3. The company is scheduled to report third-quarter results on Oct 28.

Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) has an Earnings ESP of +5.81% and a Zacks Rank #1. The company is scheduled to report results on Nov 3.

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