- On Wednesday, the three biggest drug distributors in the U.S. reached a $26B settlement with a group of state attorneys general over the claims that they helped fuel the nation’s opioid crisis.
- According to the terms of the deal, over 18 years, McKesson (MCK +2.2%) would pay $7.9B, while Cardinal Health (CAH +0.9%) and AmerisourceBergen (ABC +2.0%) will each settle for $6.4B.
- Despite the highest amount it will have to pay, McKesson will continue to have the most attractive free cash flow yield among all three distributors, Barclays analyst Steve Valiquette argues.
- In an analysis for the first ten years, Valiquette projects a $483M annual payout for McKesson and $391M each for Cardinal Health and AmerisourceBergen.
- Noting that AmerisourceBergen is trading at the lowest FCF yield among all three, the analyst projects the company’s FCF yield to drop from 8.7% to 7.1% in FY22 post-settlement, while Cardinal Health and McKesson will see their yields falling from 11.8% to 9.5% and 12.5% and 10.9%, respectively.
- Despite the highest payout by McKesson, it represents the smallest percentage of the company’s FCF yield, Valiquette added with a conclusion that MCK will continue to have the “most attractive” FCF yield before and after the settlement.
- Check out Seeking Alpha charts to explore how the price to cash flow ratios of three distributors have changed over the past 12-month period.
