The Top 3 Medical Distributors Are On Sale: AmerisourceBergen, Cardinal Health and McKesson Corp.
The top 3 Medical DistributorsAmerisourceBergen (ABC), Cardinal Health (CAH) and McKesson Corp. (MCK) dominate the distribution of pharmaceuticals and are estimated to represent 90% to 95% of the market. Moreover, each are dividend growth stocks, and as a specific subsector group all appear significantly undervalued. Therefore, it is reasonable to assume that the issues are more subsector related than company specific. As a result, the seminal questions to ask – are these companies a bargain or is there a systemic issue that threatens to make these companies and their industry irrelevant?
From a fundamental’s point of view, McKesson and AmerisourceBergen appear especially strong. Even though Cardinal Health’s fundamentals are not quite as stellar, they appear strong enough to support a higher valuation than Mr. Market is currently awarding them. Furthermore, although each of these companies operate in the same industry sector, they are similar but not the same. MorningStar offers the following insights into the minor differences between each of these dominant medical Distributors:
“McKesson, AmerisourceBergen, and Cardinal Health effectively operate as an oligopoly and are entrenched in their customer base. The three leading distributors are similar but differ slightly. McKesson is the largest pharmaceutical distributor with certain global contract manufacturing capabilities and is more vertically integrated with providers and retail pharmacy chains in Canada and Europe.
AmerisourceBergen is the closest to a pure-play pharmaceutical distributor with a platform based inside of or very close to providers and retail pharmacies.
Cardinal Health is the smallest of the three, with certain private-label commodity manufacturing capabilities and medical devices.
The companies’ investments in IT infrastructure provide the ability to navigate the highly regulated drug market. Scale also enables the companies to negotiate on behalf of providers and retail pharmacies. The required infrastructure, regulatory hurdles, and required logistics management insulate the companies from new entrants.”