Healthcare Technology & Distribution-Earnings Outlook for the Week Ahead: ABC, CAH,DGX

This week begins earnings for our pharma channel and clinical laboratories companies with AmerisourceBergen reporting Wednesday, January 28 and both Cardinal Health and Quest reporting on Thursday, January 29th. We point to strong same-store sales trends reported by the drug-retailers in part driven by a strong flu season as potentially driving upside in the quarter for both the distributors and clinical labs. We provide thoughts on each of the companies reporting this week below and inside this note.

    AmerisourceBergen (ABC/Not Rated): We have adjusted our estimates upwards for ABC’s F1Q15 in order to reflect in part strong same-store sales reported by ABC’s largest customer Walgreens. For F1Q15 we now project total revenues of ~$32.6 bil, up 11.6% y/y and operating income of ~$368 mil, up 14% y/y which equates to a margin of 1.13%, up 2 bps y/y. Our EPS estimate of $0.96, +19.6% y/y, compares to current consensus of $0.97. Focus in the quarter will be on the recently announced MWI acquisition, any impact from hepatitis-C drugs, generic price inflation and benefits from sourcing J.V.with Walgreens Boots Alliance. F1Q15 Earnings: Wednesday January 28 before market open; Conference call at 11 AM ET; (612) 288-0329

    Cardinal Health (CAH/N): For F2Q15, we project Pharma Segment revenues of ~$20.9 bil, up 7.8% y/y, and operating earnings of $501 mil, up 4% y/y, margin of 2.39%, -9 bps y/y, which in part reflects the tough comparison to last year’s benefit from both branded and generic price inflation. We also note that F2Q15 marks the beginning of quarterly fixed payments to CVS as part of the Red Oak sourcing venture (reported in cost of goods sold). For the Medical Segment, we project revenues of ~$2.9 bil, up 5.0% y/y, and operating earnings of ~$139 mil, up 6% y/y, which equates to a margin of 4.74%, up 5 bps y/y. We will look for management’s updated thoughts on the impact from lower commodity prices; recall that on the 1Q15 call management noted that it does expect a benefit from commodity prices in 2H15, yet that it will be partially offset by the impact from FX. Since then, oil prices (one of several commodity inputs for CAH) have declined another 44%. Overall we project EBIT of ~$635 mil, up 9.6% y/y. Importantly though because of an abnormally high tax rate in F2Q14 which we do not project to repeat (F2Q15 estimated tax rate of 36.5%) our EPS estimate of $1.12, equates to a increase of ~24% y/y, because of the easier year/year tax rate comparison. Our estimate is slightly ahead of current consensus of $1.10. F2Q15 Earnings; Thurs. Jan. 29th; conf. call @ 08:30 AM (719) - 234-0008 Pin:7777110.