Bear Stearns Cuts AmerisourceBergen to 'Peer Perform'

Analyst Raymond Falci says the pharmaceutical-services provider's new guidance reflects more than just the loss of a key government contract

Bear Stearns lowered AmerisourceBergen (ABC ) to peer perform.

On Wednesday, the pharmaceutical-services company cut the fiscal 2004 guidance, reflecting the loss of a Department of Veteran's Affairs contract. Analyst Raymond Falci says he believes the government's switch from AmerisourceBergen to McKesson was partially driven by McKesson's aggressive pricing. He estimates McKesson undercut AmerisourceBergen and Cardinal Health's bids by 20% of the potential profit.

Falci says the company's new guidance reflects a greater reduction than just the contract loss; he believes this guidance may also include other macro and micro unknowns. Falci expects AmerisourceBergen to replace some of the lost Veteran's Affairs business, which could start a minor pricing war between AmerisourceBergen and McKesson.

He cut the $4.52 fiscal 2004 (Sep.) earnings per share estimate to $4.18, and cut the $5.26 fiscal 2005 earnings per share to $4.59.

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