News

Cencora, Inc. COR reported first-quarter fiscal 2024 adjusted earnings per share (EPS) of $3.28, which beat the Zacks Consensus Estimate of $2.86 by 14.7%. The bottom line also improved 21% year over year.

GAAP EPS was $2.98, up 27.9% from that reported in the year-ago period.

Revenue Details

Revenues totaled $72.3 billion, up 15% year over year. The top line beat the Zacks Consensus Estimate by 5.1%.

Segmental Analysis

U.S. Healthcare Solutions

Revenues in this segment totaled $65.2 billion, up 15.9% on a year-over-year basis. This improvement was due to overall market growth and increased specialty product sales. High demand for the recently approved GLP-1 drugs for diabetes and/or weight loss has helped accelerate growth during the quarter. A rising demand for COVID-19 vaccines also boosted sales.

Segmental operating income totaled $698.1 million, up 22% year over year. Higher gross profit (including fees earned from the distribution of government-owned COVID-19 treatments and gross profit on sales to specialty physician practices) contributed to the upside.

Cencora, Inc. Price, Consensus and EPS Surprise

International Healthcare Solutions

This segment includes Alliance Healthcare, World Courier, Innomar and Profarma Specialty.

Revenues totaled $7.1 billion, up 6.9% year over year on the back of increased sales in its European distribution and Canadian businesses. The top line increased 8.7% at constant currency (cc).

Operating income totaled $187.6 million, up 16.3% reportedly and 20.2% at cc. The strong growth was driven by the addition of products, along with the acquisition of PharmaLex last year and strong Canadian business performance. The upside was partially offset by higher information technology expenses in COR’s European distribution business and loss of sales from its divested business in Egypt.

Margin Analysis

Cencora reported an adjusted gross profit of $2.39 billion, up 12.5% on a year-over-year basis. As a percentage of revenues, the adjusted gross margin was 3.31%, down 7 basis points (bps) year over year.

The company recorded an adjusted operating income of $885.7 million, up 20.7% year over year. The metric was up 21.6% at cc. As a percentage of revenues, the adjusted operating margin was 2.08%, which contracted 13 bps from the year-ago quarter’s number.

Financial Position

COR exited the fiscal first quarter with cash and cash equivalents worth $2.87 billion compared with $2.59 billion in the prior quarter.

Cumulative net cash used in operating activities totaled $885.2 million compared with $710.1 million in the year-ago period.

Dividend Update

During the quarter, Cencora's board of directors declared a quarterly dividend of 51 cents per share, payable on Feb 26, 2024, to shareholders of record at the close of business on Feb 9, 2024.

Fiscal 2024 Guidance

The company raised its outlook for fiscal 2024 earnings and revenues.

Adjusted EPS is now estimated in the range of $13.25-$13.50 (previously $12.70-$13.00), indicating growth of 10.5-12.6% over the fiscal 2023 level. The Zacks Consensus Estimate for the same is currently pegged at $12.88.

Revenues are now projected to increase 10-12%, reportedly as well as at cc, up from the previous guided range of 7-10%. The top line at the U.S. Healthcare Solutions segment is now expected to grow 11-13% (previously 7-10%). Revenues at the International Healthcare solutions business are estimated to be up 4-8%.

Adjusted operating income is expected to improve 8-10%, up from the previous expectation of 4-6%. Excluding contributions related to COVID-19 and currency fluctuations, the figure is projected to increase 11-13%, up from the previous guided range of 7-9%.

Operating income at the U.S. Healthcare Solutions segment is now anticipated to grow 9-11% (previously 4-7%). For the International Healthcare Solutions segment, the company's revised guidance for the metric is 5-8% (previously 1-4%).

Summing Up

Cencora exited the fiscal first quarter on a strong note, wherein both earnings and revenues beat their respective consensus mark by a significant margin. Shares of Cencora rose 2.8% in pre-market trading following the results. Over the past year, the company has gained 30.5% against a 6% decline of the industry. The S&P 500 has witnessed 21.5% growth in the said time frame.

Image Source: Zacks Investment Research

The company continues to witness a strong segmental performance due to growth in all markets and strong demand for specialty products, especially GLP-1 drugs. A recovery in demand for COVID-19 vaccines buoys optimism.

Per management, Cencora delivered a solid performance by playing a crucial role in the healthcare system while maintaining efficiency throughout its business. The company remains focused on its strategic priorities and thoughtful capital deployment to deliver long-term growth.

However, COR’s gross margin is being hurt by lower-margin GLP-1 drugs. The company’s rising expenses to support business activities amid inflationary challenges are putting pressure on the operating margin. Cut-throat competition in the MedTech space remains a concern.

Zacks Rank

Cencora currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Some other top-ranked stocks to consider in the broader medical space are Universal Health Services UHS, Integer Holdings Corporation ITGR and Acadia Healthcare ACHC.

Universal Health Services, carrying a Zacks Rank #2 at present, has an estimated growth rate of 4.4% for 2024. UHS’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 5.47%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UHS’s shares have risen 1.9% in the past six months against the industry’s 5% decline.

Integer Holdings, presently carrying a Zacks Rank of 2, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.9%.

Integer Holdings’ shares have rallied 43.5% in the past year against the industry’s 3.7% decline.

Acadia Healthcare, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 10.4%. ACHC’s long-term earnings growth rate is 11.2%.

Acadia’s shares have risen 11.7% in the past six months against the industry’s decline of 5%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.