Competitive Advantage

The two main competitors for Cencora in the Pharmaceutical Wholesaler space are McKesson and Cardinal Health. McKesson has a market cap of $103 Billion. Cardinal Health has a market cap of $51 Billion. Cencora has a market cap of $69 Billion. Each of these companies lands firmly in the top 20 of the Fortune 500. McKesson is #9, Cencora is #10, and Cardinal Health is #15. All 3 of these companies have been steadily trending upward in terms of gross revenue over the last two decades. These companies being in the top 20 of the fortune 500 means that while none of them have a specific competitive advantage over the other, the space at large is highly cash flush. Proven by the ability to support three top 20 companies with upward trending revenue charts each at $300 Billion or more. The main competitive advantage for Cencora is that they were able to ride the wave of growth over the last two decades to achieve the scale they are now. The distribution networks and scale of facilities, to move the volume of product they do at these incredibly slim margins, will be the main competitive advantage that i see going forward. This industry will not be easy to disrupt or scale from ground zero to the size of these existing companies. Essentially these 3 companies themselves have a competitive moat compared to the rest of the space.

To me i see the weakest part of the moat being the potential for litigation against the healthcare and pharmaceutical space. Each of these companies got slapped with multi-billion dollar suits during the opioid scandal 5 or 6 years ago. These were hefty fines given the fact that while these companies have tremendous revenue, they have relatively low profit. Making ~$2 Billion off of $300 Billion in revenue shows the incredibly slim margins in this space. They are making a penny or two on the dollar. You can see this reflected on the Book Value and FCF for each of these companies in the years the litigation was enacted.