AmerisourceBergen Corp. (ABC) — This large-cap distributor of pharmaceutical products and health care services recently announced its plans to acquire MWI Veterinary Supply, Inc. (MWIV) for $2.5 billion. This acquisition, which is pending shareholder and regulatory approval, would launch the company into the animal health market.
Analysts at S&P Capital IQ said they see long-term benefits for AmerisourceBergen from the deal thanks to improved sales leverage and product sourcing benefits. In addition, the company should benefit from a 10-year supply contract with Walgreens Boots Alliance Inc (WAG) that became effective in September 2013.
Capital IQ estimates adjusted earnings per share (EPS) for fiscal 2015 (ending in September) will increase 13% to $4.50. It rates ABC stock a “strong buy” with a 12-month target of $105.
On Oct. 29, ABC stock broke higher from a long-standing bull channel with a breakaway gap, a bullish technical event. Unlike continuation gaps, breakaways are not often closed by profit-taking.
Following the successful break, ABC stock formed a new bull channel with support at its 50-day moving average at $90.56 and resistance at $95.
Buyers may want to play it safe and wait for the company’s fiscal first-quarter earnings report, which is scheduled to be released on Jan. 28. The consensus expectation is for EPS to rise more than 21% to $0.97. A failure to meet analysts’ estimates could result in a pullback and an excellent buying opportunity. However, if estimates are met or exceeded, look for a quick run to my trading target of $105, which is 14% above current prices.
The company pays an annual dividend of $1.16 per share for a forward annual yield of 1.3%.
