CNBC’s Jim Cramer stated he is not buying drug distribution stocks, including Cardinal Health (CAH), AmerisourceBergen Corp. (ABC), and McKesson Corp. (MCK), due to challenges in the sector stemming from potential regulatory crackdowns and price cuts for pharmaceutical drugs.
Key Points from Cramer’s Analysis
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Regulatory Concerns: Cramer highlighted that the President’s executive order aimed at lowering drug prices has led to a sell-off across the sector. He emphasized, "Regulatory risk is real," noting the uncertainty created by this order.
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Pressure on Pharmaceutical Companies: Lawmakers are pressuring pharmaceutical companies to lower prices, which could adversely affect drug distributors. Cramer remarked, "The pharmaceutical companies are going to have to take some of these price cuts… it will hurt these distributors."
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Cencora Inc. Performance: Not all companies in the sector are struggling equally. Cencora Inc., a distributor of generic drugs, reported strong earnings, beating expectations by 31 cents per share, although it slightly missed revenue estimates. Cramer cautioned investors against buying Cencora’s stock due to ongoing regulatory and pricing concerns.
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Market Reactions:
- Shares of Cardinal Health fell 4% after hours, with year-to-date losses nearing 20%.
- AmerisourceBergen shares dropped 3%, down nearly 15% year-to-date.
- McKesson shares declined 2%, with a 12% drop over the same period.
- CVS Health (CVS) and Walgreens Boots Alliance Inc. saw minimal gains of less than half a percent.
Broader Market Impact
The S&P Pharmaceuticals Index experienced a significant decline, falling more than twice as much as overall market indexes during trading on Tuesday. This drop followed news from Pfizer Inc.’s vaccine unit BioNTech SE, which announced its COVID-19 vaccine had been approved in Japan for children aged five to eleven.
In a recent interview, Cardinal Health CEO Mike Kaufmann acknowledged the challenges facing the company, stating, "We’re seeing some headwinds right now," but expressed confidence in navigating these issues: "We feel like we can navigate through those headwinds."
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