The Zacks Analyst Blog Highlights: AmerisourceBergen, Walgreens, Cardinal Health, CVS Caremark and Duke Energy

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Apr 04, 2013, 09:30 ET

CHICAGO, April 4, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include AmerisourceBergen Corp. (NYSE:ABC), Walgreens (NYSE:WAG), Cardinal Health (NYSE:CAH), CVS Caremark Corporation (NYSE:CVS) and Duke Energy Corporation (NYSE:DUK).

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Here are highlights from Wednesday's Analyst Blog:

AmerisourceBergen Aims to Offload Biz

AmerisourceBergen Corp. (NYSE:ABC) recently announced that it has inked a definitive agreement to sell its contract packaging unit, AndersonBrecon, to a conglomerate of an investor group led by Frazier Healthcare VI, L.P for approximately $308 million in cash.

The conglomerate includes affiliates of Greenspring Associates, QIC Global Private Equity and Thomas McNerney & Partners and has been formed solely for the acquisition of AndersonBrecon.

The results of AndersonBrecon are reported as discontinued operations. Consequently, the sale of this business therefore will not impact AmerisourceBergen's guidance for fiscal 2013.

We note that AmerisourceBergen has been streamlining its portfolio in recent times. The company reportedly sold its Canadian pharmaceutical distribution business, AmerisourceBergen Canada Corporation (ABCC) to Kohl & Frisch Limited for approximately $80 million – $100 million. AmerisourceBergen will however retain its specialty business unit in Canada.

Following the announcement to sell its Canadian Pharmaceutical Distribution Business on Mar 28, 2013, AmerisourceBergen revised its guidance for 2013.

AmerisourceBergen now expects revenues in 2013 to grow by roughly 8% to 10% compared to the previous guidance of 8% – 11% growth.

AmerisourceBergen increased its earnings guidance for fiscal 2013 to $3.04 – $3.14 from the earlier projected range of $2.96 – $3.06.

We believe the company is well positioned for growth given the strong performance of its generics business. In Mar 2013, the company struck a 10-year deal with Walgreens (NYSE:WAG) which is expected to add approximately $2 billion to top line in fiscal 2013.

We note that Walgreens chose AmerisourceBergen over peer Cardinal Health (NYSE:CAH) with whom it already had a pharmaceutical distribution contract but decided not to renew the same.

AmerisourceBergen carries a Zacks Rank #3 (Hold). Right now, CVS Caremark Corporation (NYSE:CVS) looks well placed with a Zacks Rank #2 (Buy).

Duke Energy, PUCO Settle Rate Hike Case

Duke Energy Ohio, a unit of Duke Energy Corporation (NYSE:DUK), has reached a settlement with the Staffs of the Public Utilities Commission of Ohio ("PUCO") over its Jun 2012 request to hike its rates.

Under the latest agreement, the annual increment in revenue for the Cincinnati-based utility is $49 million for an average 2.9% increase in electric bills. This is equivalent to a monthly hike of $3.72 for a normal Ohio residential electric customer. After the necessary permit, the electric rate increases would take effect mid-year. The recourse to rate hike applications is a usual practice by energy companies to recover the huge capital investments they make.

However, the settlement leaves gas rate increases unresolved due to the lawsuits over environmental remediation costs related to Duke Energy's former manufactured gas plant locations.

Per the approval, PUCO has approved a return on equity ("ROE") of 9.84% for both the electric and natural gas distribution cases. The approval includes a capital structure of 53.3% equity and 46.7% debt. This is in line with the company's present capital structure. Duke Energy Ohio has also decided to set aside about $700,000 annually for its low income weatherization and fuel fund.

This rate hike approval will aid the company to recover its investments. Over the last couple of years, Duke Energy has exhausted a substantial amount to improve the natural gas delivery system. This is essential for improving efficiency, cutting fuel consumption and, thereby, lowering the cost of operations.

Recently, another affiliate of Duke Energy Corporation − Duke Energy Carolinas − requested the South Carolina Utilities Commission ("PSCSC") to make a 15.1% rate increase. If approved, the rate increase is expected to generate $220 million more from the customers.

We view Duke Energy − the largest electric power holding company in the U.S. − as a well-managed and high-quality energy provider in high-growth areas. However, the present unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, and pending regulatory cases keep us on the sidelines.

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