ABC
Transcript of ABC
A Presentation by David Brokate
October 6, 2003
Presentation Outline Company Outline Value of Holding Company Snapshot Current News an Information Financial Statements Stock Performance Earnings and Net Income Estimates Trend Analysis and Comparative Analysis Ratio Analysis Spreadsheet Model Valuations Riskgrade Analysis Analyst Recommendations Conclusion Recommendation
Company Outline
Ticker: ABCSector: Healthcare Industry: Drug WholesaleMarket: New York Stock ExchangeMarket cap: $6154.50 (mil)52 week-high: $76.9552 week low: $45.65Recent price: $56.71Shares outstanding: 111.90 (mil)
Value of Holding
Number of shares currently held: 50Date shares were bought: 02/04/2002Purchase price: $63.90Total cost of purchase: $3195.00Recent price/ share: $56.71Market value of holding: $2835.50
Company Snapshot
Business Description: Wholesale distributor of pharmaceutical products and related healthcare services and solutions, including pharmaceuticals, proprietary medicines, cosmetics, toiletries, personal health products, sundries and home healthcare supplies and equipment.
Location: Valley Forge, PA, USA * Nation’s number 1 drug wholesaler
Current News and Information
On January 6, 2003, Amerisource Bergen completed the purchase of Bridge Medical, Inc. which has the industry-leading bedside scanning capabilities.
On January 17, 2003, Amerisource Bergen acquired US Bioservices Corporation which is a national pharmaceutical services provider.
Current News and Information (cont.) On September 19, 2003, The Wall Street Journal
reported that the Food and Drug Administration and the FBI were looking into allegations that Amerisource Bergen illegally diverted prescription drugs into a second market to boost profits.
The CEO, R. David Yost, acknowledged that a former employee had been engaged in misconduct a few years ago but was found quilty to mail fraud. He also acknowledged that a former customer participated in illegal actions in 2000.
R. David Yost guaranteed that an investigation would vindicate the company.
Financial Statements
See Handouts
Stock Performance (2 yrs)
Stock Performance (1 yr)
Stock Performance vs. competitors (1 yr)
Earnings Estimate
Net Income Estimate
Trend Analysis: Income Statement
9/30/02 9/30/01 9/30/00 9/30/99 9/30/98
Revenue 476.00% 170.38% 122.54% 103.20% 100.00%
COGS 477.93% 171.34% 123.05% 103.24% 100.00%
Gross Profit 438.30% 151.57% 112.49% 102.42% 100.00%
SGA Expenses 424.30% 142.09% 104.73% 102.02% 100.00%
Depriciation/ Amortization
362.13% 127.81% 95.27% 102.96% 100.00%
Total Operating Expenses
475.39% 170.14% 122.20% 103.04% 100.00%
Operating Income 517.21% 186.75% 145.50% 114.47% 100.00%
Net Income 749.78% 269.13% 215.22% 146.74% 100.00%
Comparative Analysis: Income Statement
9/30/02 9/30/01 9/30/00 9/30/99 9/30/98
Revenue 100.00% 100.00% 100.00% 100.00% 100.00%
COGS 95.52% 95.68% 95.54% 95.18% 95.14%
Gross Profit 4.48% 4.32% 4.46% 4.82% 4.86%
SGA Expenses 2.70% 2.52% 2.59% 2.99% 3.03%
Depriciation/ Amortization
0.14% 0.13% 0.14% 0.18% 0.18%
Total Operating Expenses
98.41% 98.40% 98.26% 98.38% 98.54%
Operating Income 1.59% 1.60% 1.74% 1.62% 1.46%
Net Income 0.76% 0.76% 0.85% 0.69% 0.48%
Trend Analysis: Balance Sheet
9/30/02 9/30/01 9/30/00 9/30/99 9/30/98
Cash & Short Term Investments 1367.63% 613.61% 249.07% 122.68% 100.00%
Accounts Receivable 436.50% 420.88% 122.57% 120.31% 100.00%
Total Inventory 570.01% 530.01% 164.62% 130.31% 100.00%
Total Current Assets 535.75% 482.03% 148.90% 123.20% 100.00%
PPE-Net 415.59% 425.88% 95.59% 94.71% 100.00%
Goodwill 5263.01% 5072.32% 100.00% - -
Other LT Assets 376.35% 364.63% 31.16% 76.35% 100.00%
Total Assets 649.54% 596.14% 142.42% 119.37% 100.00%
Accounts Payable 566.82% 527.13% 167.28% 124.14% 100.00%
Accrued Expenses 883.87% 713.09% 117.08% 116.13% 100.00%
Total Current Liabilities 558.05% 506.18% 160.25% 121.44% 100.00%
Long Term Debt 325.58% 346.97% 76.59% 103.56% 100.00%
Total Debt 336.85% 347.43% 76.59% 103.56% 100.00%
Total Liabilities 481.36% 454.29% 132.66% 115.47% 100.00%
Additional Paid-In Capital 1168.68% 1107.81% 115.90% 109.04% 100.00%
Retained Earnings 10513.64% 2913.64% 100.00% - -
Total Equity 3869.66% 3312.25% 329.40% 194.05% 100.00%
Total Liab. & Shareh. Equity 649.54% 596.14% 142.42% 119.37% 100.00%
Comparative Analysis: Balance Sheet
9/30/02 9/30/01 9/30/00 9/30/99 9/30/98
Cash & Short Term Investments 5.92% 2.89% 4.91% 2.89% 2.81%
Accounts Receivable 19.82% 20.82% 25.38% 29.72% 29.49%
Total Inventory 48.50% 49.13% 63.88% 60.33% 55.26%
Total Current Assets 74.46% 73.00% 94.39% 93.18% 90.28%
PPE-Net 2.52% 2.81% 2.64% 3.13% 3.94%
Goodwill 19.67% 20.65% 1.70% - -
Other LT Assets 3.35% 3.54% 1.26% 3.70% 5.78%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%
Accounts Payable 47.87% 48.51% 64.43% 57.05% 54.86%
Accrued Expenses 4.15% 3.65% 2.51% 2.97% 3.05%
Total Current Liabilities 54.40% 53.76% 71.24% 64.41% 63.31%
Long Term Debt 15.66% 18.19% 16.81% 27.11% 31.25%
Total Debt 16.21% 18.21% 16.81% 27.11% 31.25%
Total Liabilities 70.42% 72.42% 88.52% 91.93% 95.03%
Additional Paid-In Capital 25.49% 26.33% 11.53% 12.94% 14.17%
Retained Earnings 4.13% 1.25% 0.18% - -
Total Equity 29.58% 27.58% 11.48% 8.07% 4.96%
Total Liab. & Shareh. Equity 100.00% 100.00% 100.00% 100.00% 100.00%
Ratio Analysis
ABC CAH MCK Industry Sector S&P 500P/E Ratio (TTM) 14.41 18.5 16.58 42.57 30.66 24.38Beta -0.13 0.17 0.19 0.88 0.53 1Price to Sales (TTM) 0.13 NA 0.17 11.98 6.02 3.26Price to Book (MRQ) 1.54 3.55 2.09 6.46 5.62 4.14% Owned Institutions 87.41 82.74 80.88 45.4 48.03 64.04
Sales (TTM) vs TTM 1 Yr. Ago 23.03 NA 15.51 34.08 16.97 8.98Sales-5 Yr. Growth Rate 40.38 22.69 20.91 27.85 15.87 9.81EPS (TTM) vs TTM 1 Yr. Ago 33.89 27.28 38.93 38.16 12.99 24.95EPS-5 Yr. Growth Rate 25.97 24.43 13.77 20.96 18.31 10.48
ROA (TTM) 3.56 8.27 4.31 -2.24 7.66 6.01ROA - 5 Yr. Avg. 3.19 7.1 2 -0.33 9.7 7.27ROI (TTM) 7.59 14.38 9.76 -1.42 11.02 9.48ROI - 5 Yr. Avg. 8.6 12.05 4.44 2.55 14.94 11.76ROE (TTM) 11.9 21.29 13.74 -0.73 18.42 17.59ROE - 5 Yr. Avg. 42.32 18.14 6.27 6.35 24.03 20.18
Management Effectivenes
Valuation Ratios
Growth Rate Ratios
Ratio Analysis (cont.)
ABC CAH MCK Industry Sector S&P 500Gross Margin (TTM) 4.51 7.96 5.23 69.25 67.03 46.96Gross Margin - 5 Yr. Avg. 4.59 8.57 6.11 68.68 67.27 47EBITD Margin (TTM) 1.87 4.39 1.97 9.67 20.57 18.94EBITD - 5 Yr. Avg. 1.75 3.84 1.43 15.31 23.4 20.89Operating Margin (TTM) 1.73 3.92 1.63 6.37 17.18 18.04Operating Margin - 5 Yr. Avg. 1.6 3.35 0.92 5.86 17.5 17.82Net Profit Margin (TTM) 0.86 NA 1.01 -0.52 10.84 11.85Net Profit Margin - 5 Yr. Avg. 0.72 1.9 0.5 2.6 11.99 11.38
Quick Ratio (MRQ) 0.42 0.44 0.68 4.28 1.99 1.27Current Ratio (MRQ) 1.47 1.65 1.42 5.14 2.64 1.8LT Debt to Equity (MRQ) 0.58 0.32 0.32 0.33 0.34 0.68Total Debt to Equity (MRQ) 0.59 0.33 0.32 0.34 0.43 1
Receivable Turnover (TTM) 21.43 NA 13.59 9.18 7.01 9.75Inventory Turnover (TTM) 7.58 6.34 9.26 2.91 4.32 9.89Asset Turnover (TTM) 4.15 2.43 4.27 0.68 0.81 0.93
Efficiency Ratios
Financial Condition Ratios
Profit Margin Ratios
STOCK VALUATION MODELS
NAME OF COMPANY AmerisourceBergen (ABC)
LAST YEAR 2002 YearNUMBER OF SHARES OUTSTANDING (Mil.) 106.58 Millions of SharesMARKET PRICE OF STOCK / SHARE $56.60 Dollars Per Share $85.00 Price of StockNET INCOME AFTER TAXES $344.90 Millions of Dollars Expected inTOTAL SALES OR REVENUES $45,234.80 Millions of Dollars 5 yearsBOOK VALUE OF EQUITY (FROM BALANCE SHEET) $3,316.30 Millions of DollarsRISK FREE RATE (T- Bill) 3.50% Annual Percentage RateDIVIDENDS PAID (TOTAL AMOUNT PAID) $10.50 Millions of DollarsSTOCK REPURCHASES (TOTAL AMOUNT PAID) $0.00 Millions of DollarsREQUIRED INFORMATION FOR CALCULATION OF REQUIRED RATE OF RETURNBETA OF STOCK -0.13MARKET RISK PREMIUM (5%-6% Historically) 6.00% Expected Market Risk Premium %REQUIRED INFORMATION FOR VARIABLE GROWTH RATE VALUATIONSEXPECTED GROWTH RATE (EARNINGS OR DIVIDENDS & STOCK REPURCHASES) 3.5000% 3.0000% 3.0000% 2.0000% 2.0000%
COMPUTER-GENERATED CALCULATIONS
EARNINGS PER SHARE $3.24LAST CASH DIVIDEND & STOCK REPURCHASE PAYMENT PER SHARE $0.10
EXPECTED ANNUAL GROWTH RATE (EARNINGS OR DIVIDENDS & STOCK REPURCHASES) 2.63% Geometric Mean of Annual Rates
EXPECTED EARNINGS PER SHARE IN 5 YEARS $3.34SUSTAINABLE RATE OF GROWTH 10.08% (ROE * (1-Payout Ratio))
REQUIRED RATE OF RETURN (k) 2.72% CAPMREQUIRED RATE OF RETURN (k) 2.81% Dividend Discount ModelREQUIRED RATE OF RETURN (k) 2.76% Average of CAPM and DDM
COMPUTER-GENERATED CALCULATIONS
STOCK VALUE - ZERO GROWTH MODEL $3.56 Not applicable for most stocksSTOCK VALUE - CONSTANT GROWTH MODEL $75.48STOCK VALUE - VARIABLE GROWTH MODEL $13.59STOCK VALUE - DIVIDEND & EARNINGS MODEL $74.66STOCK VALUE - PRICE / EARNINGS MODEL $83.74
AVERAGE PRICE EXCLUDING ZERO GROWTH $61.87
Must be positive values in each cell
All Data Required
Required Data
Name of Company AmerisourceBergen (data from marketguide)
Estimate Weighted Average Cost of Capital4.470% Cost of Equity Capital9.000% Before Tax Cost of Debt6.000% Market Risk Premium (RM-RF)
16.210% Debt Ratio (Total Debt/Total Assets)-0.130 Beta
5.250% Risk-free Rate (Use L-T Treasury Rate)4.628% = Weighted Average Cost of Capital Estimate Free Cash Flow
Current Sales ($) $45,234.80Insert Initial Free Cash Flow (Computer) $169.91 Computer Calculates EBIT Margin (%) 1.15%Insert Initial Growth Rate 3.50% See Note 1 EBIT $520.20Insert Terminal Growth Rate 3.00% See Note 2 Plus - Depreciation $58.83Insert Weighted Average Cost of Capital 4.63% Computer Calculates Less - Capital Expenditures $202.80How Many Years is Growth Projected 8 Years 0 Up to 20 Less - Net Change in Working Capital $1.00Number of Shares of Common Stock 106.58 Equals Operating Cash Flow $375.23Tax Rate 39.47% Less Taxes $205.32Total Debt Outstanding $1,817.30 Equals Free Cash Flow $169.91
Year 0 1 2 3 4 5 6 7 8 10Free Cash
Flow$0 $176 $182 $188 $195 $202 $209 $216 $224 $0 $0
Terminal Value
$14,151 $0 $0
Total FCF $0 $176 $182 $188 $195 $202 $209 $216 $14,375 $0 $0Discounted
FCF $0 $168 $166 $164 $163 $161 $159 $157 $10,009 $0 $0
Net Present Value of FCF
$11,148
Net Present Value of FCF Minus Debt
$9,331
Per Share Value $87.55
Note: Terminal Growth Rate Must be less than WACC for projections of 1 or more years; for valuations based
on 0 years of projections, WACC must be > Growth RateFREE CASH FLOW VALUATION MODEL
CALCULATION OF EVA AND MVAName of Company AmerisourceBergen Year 2002
Short-Term Debt $0.00
Long-Term Debt $1,756.50Preferred
Dividend $
Preferred Stock $0.00 $0.00
Common Stock $1.10Preferred
Stock Price
Paid-In Capital $2,856.60 $0.00
Retained Earnings $462.60
Total Invested Capital $5,076.80
Price of Stock $54.05
Number of Shares Outstanding 106.58
EBIT $572.00
Tax Rate 39.47%
Less: Taxes $225.77Equals NOPAT $346.23
Rate on Short-Term Debt 5.00%
Rate on Long-Term Debt 7.00%
Market Risk Premium 5.50%
Risk-Free Rate 6.00%
Debt to Equity Ratio 52.90%
Beta of Stock -0.13
Cost of Preferred Stock 0.00%Cost of Equity Capital 5.285% % S-T Debt % L-T Debt % Equity % Preferred StockWACC 5.88% 0.00% 34.60% 65.40% 0.00%
Analysis is Computer GeneratedCALCULATION OF EVA - ECONOMIC VALUE ADDED
EBIT Less: Taxes
Equals: NOPAT (Net
Operating Profit After
Tax) Invested Capital WACCCapital Charge
EVA (NOPAT *
Capital Charge)
$572.00 $225.77 $346.23 $5,076.80 5.88% $298.43 $47.80Firm is Creating Shareholder Wealth
CALCULATION OF MVA - MARKET VALUE ADDED
Market Value of Equity
Plus: Market Value of Debt
Equals: Market Value of Firm
Minus: Total Invested Capital
Equals: MVA
$5,760.65 $1,756.50 $7,517.15 $5,076.80 $2,440.35Firm is Creating Shareholder Wealth
Summary of Valuations
Stock Value: Constant Growth Model - $75.48Stock Value: Variable Growth Model - $13.59Stock Value: Dividend & Earnings Model - $74.66Stock Value: Price/Earnings Model - $83.74Free Cash Flow - $87.55Average Stock Value - $67.00EVA and MVA - Firm is Creating Shareholder
Wealth
Risk Analysis
ABC’s risk grade is 137.
71% of the tickers in the US Market are riskier than ABC.
Analyst Recommendations
www.morningstar.com1) Strong Buy - 112) Buy - 13) Hold - 14) Sell - 05) Strong Sell - 0 www.quicken.com
Conclusion
New acquisitions could create a unique position to control the market.
The position of the nation’s #1 drug wholesaler going into an older generation era is promising.
Most of the stock valuations produced a higher stock value than the current stock price.
Recommendation
Hold 50 shares of AmerisourceBergen