Drug distributor stocks capped off a volatile trading session Friday by finishing mostly unchanged after The Wall Street Journal reported that 21 states had rejected a proposed $18 billion settlement deal offered by three leading drug wholesalers for their alleged roles in contributing to the nation's opioid crisis. The group of state attorneys general who opposed the initial framework deal – originally laid out in October last year – now demand between $22 billion and $32 billion in total from compensation from the three companies, according to the Journal.
As news surrounding the opioid settlement case continues to develop, those who follow the drug distributor stocks involved should monitor key technical levels outlined below for possible entry points.
McKesson Corporation (MCK)
McKesson Corporation (MCK) provides pharmaceuticals and medical supplies through three divisions: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions. Morgan Stanley upgraded the company in January to "overweight" from "equal weight," saying that the drug wholesaler's specialty business and cost-cutting initiatives support future earnings growth. The investment bank also believes that McKesson's decision to divest its ownership in Change Healthcare Inc. (CHNG) should strengthen its balance sheet. Trading at $168.03 with a $29.73 billion market capitalization and offering a 0.98% dividend yield, the stock has jumped 21.48% on the year, outperforming the medical distribution industry over the same period by nearly 6% as of Feb. 18, 2020.
McKesson shares oscillated within a roughly 25-point range between June and January before braking higher on above-average volume this month to set a fresh 52-week high at $169.67. Those who wish to buy the stock should look for a pullback entry near $155 – an area where previous resistance now provides support.
AmerisourceBergen Corporation (ABC)
Chesterbrook, Pennsylvania-based AmerisourceBergen Corporation (ABC) sources and distributes pharmaceutical products in the United States and globally. The $19.43 billion pharmaceutical dispenser posted fiscal first quarter 2020 earnings per share of $1.76, with the figure topping Wall Street expectations by a dime and increasing from $1.60 in the year-ago quarter. President and CEO Steven H. Collis cited strong performances in the company's Pharmaceutical Distribution as well as its Global Commercialization Services and Animal Health groups for the impressive quarterly results. As of Feb. 18, 2020, ABC stock yields 1.78% and has gained 11.48% year to date.
The stock broke out from seven months of sideways price action in early February – a move that may act as a catalyst for further buying. As news of the opioid settlement objection broke Friday morning, the share price retraced back within its previous trading range, but it closed the day toward its session high, indicating the bulls' firm rejection of these lower levels. In terms of entry, think about placing a buy limit order near key support at $92.
Cardinal Health, Inc. (CAH)
With a market cap of $17.40 billion, Cardinal Health, Inc. (CAH) operates as an integrated health care services and products company, providing customized solutions for pharmacies, health care providers, and manufacturers. The company sits well positioned to reap benefits from its acquisition-driven strategy, which remains committed toward investment in key growth businesses to gain market share and drive profits. Analysts expect the drug wholesaling giant to generate revenue of $152.92 billion in fiscal 2020, which would represent a 5.1% increase from fiscal 2019. Cardinal Health shares issue a healthy 3.24% dividend yield and have added almost 18% so far this year as of Feb. 18, 2020.
The Cardinal Health share price trended steadily higher from August to November before ranging between $49 and $56 over several months. More recently, the price gapped above the November peak after delivering better-than-expected earnings. Given that the relative strength index (RSI) indicates short-term overbought conditions, traders should consider waiting for a retracement to crucial support at $56 before purchasing the stock.
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