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AmerisourceBergen (ABC) Roof Leaking Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified AmerisourceBergen ( ABC) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified AmerisourceBergen as such a stock due to the following factors:

  • ABC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $113.1 million.
  • ABC has traded 1.2 million shares today.
  • ABC is trading at 2.15 times the normal volume for the stock at this time of day.
  • ABC crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in ABC with the Ticky from Trade-Ideas. See the FREE profile for ABC NOW at Trade-Ideas

More details on ABC:

AmerisourceBergen Corporation sources and distributes pharmaceutical products to healthcare providers, pharmaceutical and biotech manufacturers, and specialty drug patients in the United States and internationally. The stock currently has a dividend yield of 1.4%. ABC has a PE ratio of 43.2. Currently there are 7 analysts that rate AmerisourceBergen a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for AmerisourceBergen has been 1.7 million shares per day over the past 30 days. AmerisourceBergen has a market cap of $15.3 billion and is part of the services sector and wholesale industry. The stock has a beta of 0.72 and a short float of 2.8% with 3.67 days to cover. Shares are down 4.9% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates AmerisourceBergen as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 38.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.81, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.41 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Compared to its closing price of one year ago, ABC's share price has jumped by 32.32%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • AMERISOURCEBERGEN CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, AMERISOURCEBERGEN CORP reported lower earnings of $2.10 versus $2.84 in the prior year. This year, the market expects an improvement in earnings ($3.69 versus $2.10).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Providers & Services industry and the overall market, AMERISOURCEBERGEN CORP's return on equity exceeds that of both the industry average and the S&P 500.

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