Cencora (COR)

Healthcare distributor Cencora (NYSE:COR) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 10.3% year on year to $75.45 billion. Its non-GAAP profit of $4.42 per share was 7.9% above analysts’ consensus estimates.

Company Overview

Formerly known as AmerisourceBergen until its 2023 rebranding, Cencora (NYSE:COR) is a global pharmaceutical distribution company that connects manufacturers with healthcare providers while offering logistics, data analytics, and consulting services.

Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.

Cencora's primary competitors in pharmaceutical distribution include McKesson Corporation (NYSE:MCK) and Cardinal Health (NYSE:CAH), which together with Cencora form the "Big Three" distributors that dominate the U.S. market. In specialty logistics, the company competes with UPS Healthcare (NYSE:UPS) and FedEx (NYSE:FDX).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $310.2 billion in revenue over the past 12 months, Cencora is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Cencora’s 10.8% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Cencora’s annualized revenue growth of 11.9% over the last two years is above its five-year trend, suggesting some bright spots.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, US Healthcare. Over the last two years, Cencora’s US Healthcare revenue averaged 12.8% year-on-year growth.

This quarter, Cencora’s year-on-year revenue growth was 10.3%, and its $75.45 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.6% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is satisfactory given its scale and implies the market is forecasting success for its products and services.

Cencora was roughly breakeven when averaging the last five years of quarterly operating profits, lousy for a healthcare business.

On the plus side, Cencora’s operating margin rose by 3.1 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its past improvements as the company’s margin was relatively unchanged on two-year basis.

This quarter, Cencora generated an operating profit margin of 1.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Cencora’s EPS grew at a spectacular 14.5% compounded annual growth rate over the last five years, higher than its 10.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Cencora’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Cencora’s operating margin was flat this quarter but expanded by 3.1 percentage points over the last five years. On top of that, its share count shrank by 5.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Cencora reported EPS at $4.42, up from $3.80 in the same quarter last year. This print beat analysts’ estimates by 7.9%. Over the next 12 months, Wall Street expects Cencora’s full-year EPS of $14.83 to grow 9.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Cencora broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Cencora failed to improve its margin during that time. Its unexciting margin and trend likely have shareholders hoping for a change.

Cencora’s free cash flow clocked in at $3.22 billion in Q1, equivalent to a 4.3% margin. Its cash flow turned positive after being negative in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Cencora’s five-year average ROIC was 57.3%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Cencora’s ROIC averaged 2.3 percentage point decreases each year. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Cencora reported $1.98 billion of cash and $7.86 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.31 billion of EBITDA over the last 12 months, we view Cencora’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $23.76 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Even though revenue was just in line, Cencora beat EPS expectations and raised full-year EPS guidance to a level above Wall Street's estimates. Zooming out, we think this was a solid quarter. The stock remained flat at $292.01 immediately following the results.

Updated: May 16, 2025 at 11:34 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Cencora.

There is a lot to like about Cencora. For starters, its revenue growth was good over the last five years. And while its operating margins are low compared to other healthcare companies, its scale gives it meaningful leverage when negotiating reimbursement rates. Additionally, Cencora’s stellar ROIC suggests it has been a well-run company historically.

Cencora’s P/E ratio based on the next 12 months is 17.9x. Scanning the healthcare space today, Cencora’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $317.09 on the company (compared to the current share price of $288.51), implying they see 9.9% upside in buying Cencora in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.