Wayman Value Investing - New Stock Recommendation - October 2024
A new position is being added to the Wayman portfolio
# # # New Position # # #
Cencora (COR)
Recent Price: 219.79
Market Cap: 43.14B
P/FCF: 11.32
P/E: 23.88
P/S: 0.15
LT Debt/Eq: 4.50
Projected 4yr FCF: 21.01B
Wayman Portfolio Tier: Stash
Cencora (COR) is a pharmaceutical services company headquartered in Conshohocken, Pennsylvania. Founded in 2001 through the merger of AmeriSource Health and Bergen Brunswig, the company has grown to become one of the largest drug distributors in the United States. Cencora's primary business involves the distribution of branded, generic, and specialty pharmaceutical products to healthcare providers, including pharmacies, hospitals, and alternate care facilities. The company also offers consulting and other services to pharmaceutical manufacturers.
In evaluating Cencora as a potential investment, we must first acknowledge that the pharmaceutical distribution business is not typically associated with high growth or exciting technological breakthroughs. However, it's precisely this lack of glamour that creates an opportunity for the discerning value investor. The pharmaceutical supply chain is complex and highly regulated, creating significant barriers to entry. Cencora, along with its main competitors McKesson and Cardinal Health, form an oligopoly that controls over 90% of the U.S. drug distribution market. This market structure provides a degree of stability and pricing power that is often overlooked by growth-oriented investors.
Examining Cencora's financials, we find a company with consistent revenue growth and improving margins. Over the past five years, the company has grown revenues at a compound annual growth rate of approximately 9%, while expanding its operating margin from 1.2% to 1.5%. While these figures may seem modest, they reflect the steady, incremental improvements that often characterize excellent long-term investments. Moreover, Cencora's return on invested capital has consistently exceeded its cost of capital, indicating that management is creating value for shareholders.
The company's balance sheet, while not pristine, is manageable. Cencora's debt-to-EBITDA ratio of around 2.5x is reasonable for a business with its stable cash flows. Furthermore, the company has demonstrated a commitment to returning capital to shareholders through both dividends and share repurchases.
In conclusion, Cencora represents a classic value investment opportunity: a market-leading company in a stable, essential industry, trading at a discount to its intrinsic value. While it may not offer the excitement of a high-growth tech stock, it provides the potential for steady, compounding returns over time.
Please keep in mind that while some investors might rely on market catalysts when considering what new positions to take, Wayman considers its style to be “catalyst-free investing.” Our reason for purchasing will always be based on our calculations which show a business is worth far more than where the market is pricing it. - Frank Memcaj, Founder of Wayman Value Investing