What is ABC's Intrinsic value?

Amerisourcebergen Corp (ABC) Intrinsic Value Analysis

Executive Summary

As of June 21, 2025, Amerisourcebergen Corp's estimated intrinsic value ranges from $123.70 to $220.09 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $220.09 +22.3%
Discounted Cash Flow (5Y) $201.36 +11.9%
Dividend Discount Model (Multi-Stage) $123.70 -31.3%
Dividend Discount Model (Stable) $155.17 -13.8%
Earnings Power Value $142.59 -20.8%

Is Amerisourcebergen Corp (ABC) undervalued or overvalued?

With the current market price at $179.98, the stock appears to be fairly valued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Amerisourcebergen Corp's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 4.2% 4.7%
Equity market risk premium 5.0% 6.0%
Adjusted beta 0.42 0.6
Cost of equity 6.3% 8.8%
Cost of debt 4.0% 4.9%
Tax rate 29.1% 31.5%
Debt/Equity ratio 0.16 0.16
After-tax WACC 5.8% 8.0%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $238,587 (FY09-2022) to $373,852 (FY09-2032)
  • Net profit margin expansion from 1% to 1%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $201 $44,074M 79.6%
10-Year Growth $220 $47,837M 64.1%
5-Year EBITDA $128 $29,388M 69.4%
10-Year EBITDA $158 $35,343M 51.4%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 23.1%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 7.5%
  • Long-term growth rate: 2.0%
  • Fair value: $123.70 (-31.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.8% (Low) to 6.3% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $76 to $234
  • Selected fair value: $155.17 (-13.8% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $2,171M
Discount Rate (WACC) 8.0% - 5.8%
Enterprise Value $27,020M - $37,522M
Net Debt $3,631M
Equity Value $23,389M - $33,890M
Outstanding Shares 201M
Fair Value $116 - $169
Selected Fair Value $142.59

Key Financial Metrics

Metric Value
Market Capitalization $36150M
Enterprise Value $39781M
Trailing P/E 21.28
Forward P/E 22.56
Trailing EV/EBITDA 8.15
Current Dividend Yield 108.35%
Dividend Growth Rate (5Y) 4.14%
Debt-to-Equity Ratio 0.16

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $66.03
Discounted Cash Flow (5Y) 25% $50.34
Dividend Discount Model (Multi-Stage) 20% $24.74
Dividend Discount Model (Stable) 15% $23.28
Earnings Power Value 10% $14.26
Weighted Average 100% $178.64

Investment Conclusion

Based on our comprehensive valuation analysis, Amerisourcebergen Corp's weighted average intrinsic value is $178.64, which is approximately 0.7% below the current market price of $179.98.

Key investment considerations:

  • Strong projected earnings growth (1% to 1% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.16)
  • Historical dividend growth of 4.14%

Given these factors, we believe Amerisourcebergen Corp is currently fairly valued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.