The article below was published in the US yesterday in Barrons.
The point I took from the article is that distributors of generic products may start to see some margin improvements. This may be good news when Mayne Pharma starts to distribute Myring in the US hopefully starting later in 2020.
The three firms— Cardinal Health (ticker: CAH), McKesson (MCK), and AmerisourceBergen (ABC)—are consistently able to generate cash flow, potentially making them attractive to investors, UBS analyst Kevin Caliende wrote in a research note Friday morning. And the current crisis might mean a near-term resolution to litigation over opioid drugs that has been a serious overhang for the three stocks.
“We think there is upside to consensus earnings for the pharmaceutical wholesalers through calendar 2021 driven by improving profit spreads on generics, better over revenue mix, and capital deployment, partially offset by margin loss by shift to mail and some COVID-related expenses,” Caliendo wrote.
Caliendo upgraded Cardinal to Buy from Neutral, and set a target for the stock price of $64, up from $48. The stock was trading at $48.78 on Friday morning, up 3.1% on the day.
He upgraded McKesson to Buy from Neutral, setting a new price target of $160, up from $150. McKesson traded at $134.56 on Friday, up 3.9% on the day.
Caliendo maintained his Buy rating on AmerisourceBergen, lowering his price target to $99, from $108. The stock was at $84.40 on Friday, up 0.9%.
All three of the stocks have outperformed the S&P 500, which is down 12.1% in 2020. Cardinal has fallen 6.5% over the same period, while McKesson is down 6.4%, and AmerisourceBergen has lost 1.1%.
In his note, Caliendo wrote that he thought it likely that the Covid-19 crisis would bring a near-term end to the opioid litigation that has troubled the distributors, along with other companies involved in the manufacture and sale of opioids. “The economic impact COVID has had on state and local economies may expedite settlement talks,” Caliendo wrote. “We now believe a settlement on opioids in increasingly likely and will cost the industry $25B over 18 years.”
He wrote that he thinks that profits on generic drugs will improve, and says that if the current crisis has a significant impact on the drug supply chain, it could drive up prices overall.
“We believe the cash flows of the distributors are durable and could become increasingly attractive relative to the broader market,” Caliendo wrote. “The stocks currently trade at 10-year relative lows to the market and their healthcare industry.”
MYX Price at posting:
42.5¢ Sentiment: Buy Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)