Cencora
Owning the nerve center of U.S. drug flow while avoiding pharma’s cyclicality
Cencora is one of three scaled distributors that move a majority of U.S. prescription drugs from manufacturers to pharmacies and providers. Its moat rests on efficient scale, long-standing contracts with giant customers, and complex regulatory logistics that make entry unattractive.
Recent portfolio moves deepen its specialty focus: the January 2025 acquisition of Retina Consultants of America and a December 2025 agreement to acquire a majority of OneOncology’s remaining equity interests expand management services in retina and oncology, two therapy areas with high drug utilization.
Financially, fiscal 2025 produced $321.3 billion of revenue, GAAP EPS of 7.96, adjusted EPS of 16.00, and adjusted free cash flow near $3.0 billion. Year‑end cash was about $4.36 billion against total debt of roughly $7.66 billion as RCA financing lifted leverage, though ratings remain investment grade (Moody’s Baa1, Fitch A‑/F1).
Management guides to fiscal 2026 adjusted EPS of 17.45 to 17.75, adjusted FCF of about $3.0 billion, and higher capex (~$900 million) to harden U.S. distribution. We view the core as predictable and cash generative, but pricing power is structurally limited by razor-thin distribution margins and customer concentration.
Our base-case fair multiple is 17x TTM owner‑like FCF per share, implying a reference value near 260 and an “interested” zone below ~15x FCF.
Does Cencora have a strong competitive moat?
Moat sources and durability assessment (weights in parentheses): Efficient scale (35% weight, 92/100): U.S. drug distribution is an oligopoly where the Big Three exceed 90% share. Replicating national cold‑chain logistics, DEA compliance, DSCSA serialization, returns, chargebacks, and financing is uneconomic for entrants.
We expect durability through the decade. Cost advantages (25% weight, 85/100): Scale drives purchasing power and network density; generics sourcing and high fixed‑cost leverage create a unit‑cost gap versus smaller rivals. Mix shifts to specialty further support gross profit dollars.
Switching costs (30% weight, 82/100): Deep system integration, daily delivery, credit terms, and inventory/automation ties make switching disruptive for pharmacies, health systems, and practices. Multi‑year contracts with Walgreens/Evernorth/Boots raise frictions.
Intangibles (7% weight, 70/100): Trusted compliance history, licenses, and know‑how matter in controlled substances and international markets; brand is secondary to service reliability. Network effects (3% weight, 40/100): Minimal classic network effects; scale economies dominate.
Weighted blend yields ~84. Moat erosion risks: potential disintermediation by payers/manufacturers in limited niches, PBM consolidation, and regulatory changes. Offsetting factors include renewed contracts, specialty services, and capital investment in distribution.
Does Cencora have pricing power in its industry?
Structural pricing power is limited by the role as a pass‑through distributor with low single‑digit gross margins and ~1% operating margins. Gains typically come from volume, mix, service fees, and cost efficiency rather than list‑price control. GLP‑1 growth lifts revenue but dilutes % margin.
RCA/OneOncology add higher‑margin service exposure but not monopoly pricing latitude. Overall, latent pricing power is modest.
How predictable is Cencora's business?
High recurrence and contract visibility underpin steady multi‑year growth. FY2025: revenue $321.3B, adjusted EPS 16.00; FY2026 guide: revenue +5–7%, adjusted operating income +8–10%, adjusted EPS 17.45–17.75. Contracts with Walgreens/Evernorth run to 2029 and Boots to 2031, anchoring volumes.
Risks include policy shifts and customer consolidation, but the tollbooth character on drug flows remains resilient.
Is Cencora financially strong?
Liquidity and cash generation are strong: FY2025 operating cash flow $3.88B, capex $0.67B, adjusted FCF ≈$3.0B. Year‑end 2025 cash was ~$4.36B vs total debt ~$7.66B after financing RCA; net leverage remains manageable and investment‑grade (Moody’s Baa1; Fitch A‑/F1). Opioid settlement obligations are long‑dated and reserved on the balance sheet.
Watch for temporary leverage uptick if the OneOncology buy closes; agencies expect deleveraging within two years.
How effective is Cencora's capital allocation strategy?
Priorities balance organic investment, specialty M&A, and returns. FY2025: RCA closed ($4.4B cash outlay) and Cencora signaled ~$1B distribution investment through 2030; FY2026 capex guided to ~$900M. Buybacks and a 9% dividend raise demonstrate ongoing shareholder returns, tempered in 2025 by M&A funding.
PharmaLex goodwill impairments in 2024 and 2025 flag selectivity risk. If OneOncology closes ($5B including debt retirement) we expect a near‑term focus on deleveraging. Overall track record is good but not flawless.
Does Cencora have high-quality management?
Leadership transition appears orderly: longtime COO Bob Mauch became CEO Oct 1, 2024, with Mark Durcan becoming independent Chair in Oct 2025. Execution under Collis/Mauch expanded specialty and international capabilities.
Governance has faced scrutiny tied to opioid oversight; a 2025 court‑approved derivative settlement channels ~$111M to the company but did not allege current misconduct. We view alignment as reasonable, with incentives around cash flow and growth, and an emphasis on maintaining IG ratings.
Is Cencora a quality company?
Cencora is a good quality company with a quality score of 78/100
- Efficient‑scale oligopoly: McKesson, Cencora, and Cardinal control 90%+ of U.S. drug distribution, creating a formidable cost and scale barrier.
- Contracted predictability: Walgreens/Evernorth contracts run to 2029 and Boots to 2031, anchoring volumes; Evernorth was extended in September 2024.
- Specialty focus accelerants: RCA closed Jan 2025 and OneOncology majority buy agreed Dec 2025; both deepen relationships where drugs are central to care. Integration and leverage are key watch‑items.
- Robust cash engine: FY2025 operating cash flow $3.88B, capex $0.67B, adjusted FCF ~$3.0B; FY2026 guide reiterates ~$3.0B adjusted FCF with higher network capex.
- Risk balance: thin margins, customer concentration (Walgreens ~26%, Evernorth ~13% of FY2024 revenue), opioid liabilities and governance overhangs exist but are managed within IG balance sheet.
What is the fair value of Cencora stock?
Is Cencora a good investment at $364?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.