AmerisourceBergen Falls As Walgreens Deal Appears Off The Table; Cowen Says Buy The Dip

AmerisourceBergen Corp. ABC shares plunged Tuesday following a CNBC report it ended merger talks with Walgreens Boots Alliance Inc WBA without reaching a deal.

One Street analyst remained a buyer amid the pullback.

The Rating

Cowen analyst Charles Rhyee reiterated an Outperform rating on AmerisourceBergen with a $108 price target.

The Thesis

AmerisourceBergen had popped 10 percent earlier this month on news that Walgreens offered to acquire the 74 percent of shares it didn’t yet own. Some analysts had intimated the initial spike was unmerited, but Rhyee asserted the more recent selloff is overdone.

In fact, he sees a buying opportunity considering AmerisourceBergen’s strong underlying fundamentals and “compelling” valuations.

“Management commentary from the most recent quarter indicates that the core Pharma business is performing in-line, if not ahead, of expectations,” Rhyee wrote in a note. “Last quarter, volume, generic compliance, customer renewals, sell-side rates and margin are all performing as expected or better than anticipated.”

Generic deflation and brand inflation have tracked in-line with guidance, and the specialty distribution business recently reported its 16th consecutive quarter of more than 10-percent revenue growth.

Meanwhile, the stock has traded at a 7.5-turn discount to the S&P 500.

Price Action

At time of publication, AmerisourceBergen was trading down 4.2 percent at $96.36.

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