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Cencora is the largest drug distributor in the United States, providing wholesale, distribution and delivery services for prescription drugs. The company has established a dominant #1 position in what is effectively an 3-way oligopoly industry between themselves, Cardinal Health and McKesson due to large economies of scale with enormous distribution centers and extensive delivery networks, well established and entrenched relationships with pharmacies, and drug expertise and knowledge services for pharmacists. This creates significant barriers to entry. The company has generated consistent profit and free cash flow growth at very attractive returns on capital for many years. It also has been shielded from economic downturns in the past, providing consistent growth in all market environments.

More recently, the popularity of weight loss and diabetes drugs in the GLP-1 class have added to the company’s revenue growth. We believe these are positive tailwinds for growth that will persist for COR without having to pick the correct winner(s) in the pharmaceutical space.