Credit Suisse https://www.credit-suisse.com published their note Healthcare Distribution: 2021 Outlook: Can it be a Breakout Year? discussing trends and topics that analysts believe are likely to affect drug/medical distributors in 2021.
Key trends and updates likely to drive distributors’ performance in 2021 includes:
a) Drug pricing trends are likely to remain stable (although brand-name drug price inflation has become less of a key component to drug distributor profitability in recent years)
b) Specialty therapeutics distribution is expected to support further growth
c) While each of the drug distributors will play a role to some extent as it relates to COVID-19 vaccines, McKesson (MCK ) https://www.mckesson.comwill be the largest beneficiary due to their contract with CDC,
d) While drug pricing will continue to be a top priority for years to come, analysts believe the Biden administration is likely to take more aggressive actions towards shoring up ACA public exchanges and will further expand Medicaid coverage
e) Potential opioid settlement as well as some key trials in 2020 were delayed due to COVID-19, but analysts view both sides as looking for an end to litigations
f) PPE supply/demand could remain tight at least for 1H21
g) If there is any further move or progress from Amazon.
Analysts expect AmerisourceBergen (ABC) https://www.amerisourceberhencom, MCK, and Owens & Minor (OMI) https://www.owens-minor.com to come in ahead of consensus estimates for the quarter. Analysts see a meet-or-beat quarter for CAH driven by an assumption of elevated PPE costs due to a timing dynamic.
While analysts don’t expect much of an update from a guidance standpoint from ABC, (already raised EPS guidance alongside the Alliance Healthcare acquisition announcement) and for Cardinal Health (CAH) https://www.cardinalhealth.com, analysts see an opportunity for MCK to incorporate benefits from the COVID vaccine distribution into the company’s FY21 outlook.
Based on bear/bull analysis of a potential benefit from Operation Warp Speed’s 200 min order of Moderna vaccines through 2H21, analysts see a $0.15-0.89 benefit to EPS, with future upside from additional Moderna doses purchased by the government as well as new vaccines to be distributed through MCK.
Credit Suisse analysts recently surveyed institutional investor clients (56% Hedge Funds, 32% Long-only) on various topics including outlooks on healthcare distributors for 2021. More than half 58% of respondents have a neutral view on healthcare distributors in 2021 while 26% are bullish and 16% bearish.
On a company basis, investors are bullish on MCK (44% of respondents) followed by OMI (13%) and ABA (12%) while 25% of respondents did not indicate a bullish view on any of the distributors for 2021.
As for valuations including Credit Suisse’s opioid settlement estimates and based on our CY22 EBITDS estimates, ABC trades at 9.6x, CAH at 8.4x, MCK at 8.9x, and OMI at 10.7x. However, ABC remains Credit Suisse’s outperformed rated name.
For more information, have questions, and/or provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.