Cencora (COR) Raised Guidance and Bought Back $1B. What’s the Catch?

On August 5, Cencora (NYSE:COR) unveiled its fiscal third quarter results, revealing strong performance. Revenue climbed 5.1% to $84.8 billion, while adjusted earnings per share (EPS) soared 12.0% to $4.48. Management raised its full-year adjusted EPS guidance to $17.75 to $17.95. The company also completed $1 billion in stock repurchases during the quarter.

However, the story behind the profit figures is complex, with several factors pulling in opposite directions. One notable discrepancy is the gap between profit growth and sales growth. Adjusted operating income rose 17.0%, whereas revenue increased by only 5.1%. This disparity is largely attributed to a significant jump in gross profit, which expanded by 23.2% on an adjusted basis.

Both segments contributed to this growth, with the OneOncology acquisition in February playing a crucial role in boosting margins in the US business. Adjusted gross margins widened by 61 basis points to 4.16%, indicating that the company retains more gross profit from each dollar it generates in sales. This improvement was evident across various segments.

US Healthcare Solutions experienced a 15.9% rise in operating income, driven by higher pharmaceutical sales and the OneOncology deal. Specialty volume to health systems and physician groups also contributed to revenue growth in this segment. Internationally, Healthcare Solutions showcased even stronger performance, with operating income up 20.8% due to increased European distribution and global specialty logistics.

The company also fulfilled its commitment to repurchase $1 billion in its own stock during the quarter. Additionally, Cencora declared a $0.60 quarterly dividend, payable to shareholders on August 31, who held the stock as of August 14. However, the profit story has its complexities. Adjusted operating expenses surged 26.8% faster than adjusted gross profit, primarily due to OneOncology's acquisition.

As a result, adjusted operating income accounts for just 1.46% of revenue, a thin margin for such a large business. Financing also adds weight to the financials. Cencora financed part of the buyback through new senior notes and variable-rate term loans, resulting in a $58.9 million increase in net interest expense compared to the previous year.

The sales mix presents another challenge. While GLP-1 drugs for diabetes and weight loss contribute to revenue growth, they earn lower gross margins, reducing the overall profit impact of each dollar of growth. Furthermore, the loss of a key oncology customer in 2025 and decreased sales to a major mail order customer negatively impacted US revenue.

Lower manufacturer prices on certain brand pharmaceuticals also hindered performance. Cencora is also considering strategic alternatives for several other businesses, and its April divestiture of US Consulting Services resulted in a decline in consulting sales. The hedge fund ownership increased to 63 funds from 61 in the prior quarter, signaling growing institutional interest.

However, the short interest remains low at 2.70% of the float. Despite this, Cencora trades at a forward earnings multiple of 15.55 times, indicating that investors are paying roughly $15.55 for each dollar of expected profit over the next year. The quarter leaves one unresolved tension: while profit is growing faster than sales, the margin gains are heavily dependent on a single acquisition that also introduced higher costs and additional debt.

The optimistic outlook appears stronger if these margins persist once the added expenses and interest costs become more stable. Conversely, the skeptical view becomes more compelling if lower-margin GLP-1 volume continues to dominate the sales mix, and the losses in the US business persist. While Cencora exhibits potential as an investment, the author believes that certain AI stocks offer greater upside potential and lower downside risk.

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