Synthesis: Cencora is trading at a distinct discount to both McKesson and Cardinal Health [Valuation Comparison]. A Forward P/E of ~15.8x for Cencora represents a roughly 20% discount to McKesson's ~19.6x multiple [Valuation Comparison]. This discount appears fundamentally unjustified when considering Cencora's aggressive margin-accretive shift into specialty oncology (OneOncology) and its robust 12% YoY adjusted EPS growth Cencora Q3 2026 Earnings Release.
Why does this discount exist? It seems likely that the market is applying a “headline risk” discount to Cencora related to two specific, non-operational factors: the ongoing liquidation of equity by Walgreens Boots Alliance, and the perceived margin dilution stemming from GLP-1 weight-loss drugs. Decoupling these narratives from the actual fundamentals is key to the investment thesis.
The Walgreens Boots Alliance (WBA) Relationship
Cencora’s most consequential strategic and equity relationship is with Walgreens Boots Alliance Walgreens Q3 2024 Form 10-Q. The optics of this relationship have dominated recent headlines, as WBA has been actively selling down its massive equity stake in Cencora. For an uninformed investor, a major partner dumping stock is a glaring red flag. However, a deeper analysis reveals a vastly different reality rooted in WBA's internal financial distress.
The Mechanics of the Sell-Down
Walgreens first acquired a stake in the distributor in 2013, which eventually grew to approximately 25% of Cencora's outstanding shares WBA SEC Filings. Over the past few years, Walgreens has suffered severe operational setbacks, resulting in store closures, massive write-downs on its VillageMD primary care investment, a historic suspension of its nearly century-old dividend, and mounting debt WBA SEC Filings.
To raise desperately needed cash to meet its own 2026 debt maturities, WBA has been liquidating its Cencora stock. WBA sold $1.9 billion in 2023, $1.1 billion in August 2024, and $992 million in early 2024 WBA Form 10-K. In February 2025, WBA sold another $300 million in Cencora stock, bringing its total ownership stake down to roughly 6% WBA Form 10-K.
These sales are executed through Rule 144 block trades (a regulatory mechanism allowing major shareholders to sell large blocks of restricted or control securities directly to the public market under specific SEC conditions) and the settlement of variable prepaid forward sale contracts (financial derivatives used by WBA to monetize shares while initially retaining voting rights) WBA SEC Filings. Crucially, Cencora has utilized these events to aggressively buy back its own stock, including a $50 million concurrent repurchase during the February 2025 WBA sale Cencora SEC Filings.
The Core Business Relationship
The open question for equity analysts is whether WBA's equity liquidation signals a fracturing of their commercial partnership. The evidence strongly suggests it does not.
Walgreens has explicitly stated that the stock sales have “no impact to the long-term partnership between the two companies,” maintaining that they are fully committed to the strategic prime vendor agreement WBA Form 10-K. Furthermore, WBA's Chief Operating Officer of International, Ornella Barra, historically retained her seat on Cencora's Board of Directors to cement this tie, though recent Board adjustments reflect the changing equity landscape Cencora Proxy Statement.
However, in August 2026, Cencora did disclose a slight structural change. Effective July 1, 2026, certain Walgreens business volume that was being serviced outside of the core prime vendor agreement was moved to external parties Cencora at Morgan Stanley Conference. While the headline caused a brief dip in Cencora’s stock, management clarified that the prime vendor agreement—which represents the vast majority of the business conducted between the two firms—remains entirely intact Cencora at Morgan Stanley Conference. Furthermore, Cencora had already fully contemplated this minor volume shift in its guidance, reaffirming its $17.75 to $17.95 EPS target Cencora at Morgan Stanley Conference.
The “Zero Percent” Scenario and Prime Vendor Expiration
A vital query for any equity investor observing WBA's systematic share sales is: What happens when WBA's equity stake hits 0%?
First, the core commercial partnership is entirely decoupled from equity ownership via covenants. The U.S. Prime Vendor Agreement is a standard commercial contract; there are no penalty covenants or termination clauses triggered if Walgreens fully exits its equity position in Cencora SEC Form 8-K.
Second, the structural runway for this relationship is contractually secured well into the future. The two companies explicitly expanded and extended their U.S. distribution agreement in 2021; this prime vendor agreement is locked through 2029 AmerisourceBergen / Walgreens Press Release. Furthermore, their separate agreement regarding Alliance Healthcare and Boots UK runs through 2031 MarketBeat Analyst Coverage.
Takeaway: The WBA equity sell-down is an exogenous event driven by Walgreens' balance sheet needs, not a reflection of Cencora's business health. The contractual timeline prevents sudden commercial fractures, and the sell-down effectively removes a massive supply overhang from Cencora’s stock, paving the way for multiple expansion once WBA fully exits its position.
Risks, Red Flags, and Open Questions
While the fundamental picture is robust, a comprehensive equity analysis must interrogate the structural and legal risks that could derail Cencora’s growth trajectory.
1. The GLP-1 Margin Paradox
The pharmaceutical industry is currently undergoing a revolution driven by GLP-1 receptor agonists (such as Ozempic, Wegovy, and Mounjaro), which are used for diabetes management and weight loss. The demand for these drugs is unprecedented, driving massive top-line revenue growth for Cencora IQVIA Market Report.
However, this boom is a double-edged sword. GLP-1 drugs carry high list prices but offer structurally lower gross distribution margins per unit compared to traditional generic medications or complex specialty oncology drugs FirstWord Pharma Analysis.
Context: The following outlines the financial friction caused by GLP-1 distribution, highlighting the tension between revenue scale and profitability metrics.
Volume vs. Margin: As GLP-1 volumes surge, they inflate Cencora's total revenue denominator. Because the gross profit dollars earned on these drugs are lower relative to their high revenue cost, the overall gross margin percentage for the company is mechanically diluted Cencora Investor Relations. Offsetting the Drag: In Q3 2026, Cencora successfully offset this GLP-1 margin drag through the hyper-accretive margins of the OneOncology MSO business and a favorable LIFO (Last-In, First-Out) accounting credit Cencora Q3 2026 Earnings Release. The Open Question: If GLP-1 drugs achieve projected 30% U.S. population penetration for obesity treatment by 2035, can Cencora's specialty oncology businesses grow fast enough to continually offset the margin dilution? Research suggests that optimizing distribution logistics via Artificial Intelligence could eventually recover 15 to 20 basis points of operating margin, but in the near term, GLP-1s remain a persistent drag on percentage-based profitability metrics Cencora Filings.
2. The Opioid Litigation Long-Tail
Like its peers McKesson and Cardinal Health, Cencora is forever tethered to the tragic legacy of the U.S. opioid epidemic. The “Wave One” global settlements resolved the vast majority of state and local government litigation against the Big Three distributors, resulting in a collective agreement where Cencora alone recorded a massive $4.2 billion liability, payable over 13 years Cencora SEC Filings.
While the global settlement capped the primary existential risk, secondary legal reverberations continue. First, there are outlier jurisdictions. The City of Baltimore famously opted out of the global settlement to pursue independent claims based on the legal theory of “public nuisance” Legal News Summaries. Baltimore initially won a $152 million verdict against Cencora and McKesson Legal News Summaries. However, in a major legal victory for the distributors, the Maryland Supreme Court vacated this verdict in April 2026, ruling that local governments cannot use public nuisance laws to hold businesses liable for the lawful (albeit heavily scrutinized) distribution of approved products Legal News Summaries. Following this ruling, Baltimore completely dropped its lawsuit against Cencora in May 2026 Legal News Summaries. This dismissal allowed Cencora to record a $102 million reduction in its opioid liability in Q3 2026 Cencora Q3 2026 Earnings Release.
Second, there is internal corporate governance fallout. In August 2025, Cencora directors agreed to a $111 million settlement to resolve a derivative lawsuit brought by pension funds Cencora SEC Filings. The suit alleged that the board breached its fiduciary duties by ignoring red flags regarding suspicious opioid orders, thereby failing to stop the company from perpetuating the crisis Cencora SEC Filings. While this specific settlement brings closure to the derivative claims, it serves as a stark reminder of the reputational and financial shadows that historical compliance failures continue to cast over the firm.
Takeaway:* The immediate cash flow threat of opioid litigation is highly managed and scheduled via the 13-year payout structure. Favorable court rulings (like the Maryland Supreme Court decision) are actively reducing peripheral liabilities Legal News Summaries. However, investors must accept that Cencora operates in a highly litigious, politically sensitive sector where future mass torts regarding different drug classifications can never be entirely ruled out.
3. Antitrust and Regulatory Scrutiny
As Cencora aggressively expands into the MSO space by acquiring physician networks like OneOncology and Retina Consultants of America, it is shifting from a passive supply chain middleman to an active participant in healthcare delivery Cencora Investor Relations. By owning both the distribution channel and the entity that manages the prescribing physicians' practices, Cencora gains significant influence over treatment pathways and drug procurement Cencora Investor Relations.
This vertical integration is a phenomenal business strategy for capturing margin, but it inherently attracts the gaze of the Federal Trade Commission (FTC) and the Department of Justice (DOJ). The open question is at what threshold of market concentration the regulatory bodies will attempt to block future MSO acquisitions, potentially capping Cencora’s most lucrative avenue for long-term growth.
Synthesis and Strategic Outlook
Cencora represents a highly cash-generative, defensively positioned equity trading at a distinct discount to its peers. The core distribution business is protected by impenetrable barriers to entry—regulatory hurdles, capital requirements, and massive logistical scale—ensuring the oligopoly remains intact.
Management’s foresight to aggressively pivot capital toward specialty oncology (OneOncology) is currently bearing fruit, evidenced by the 17% growth in adjusted operating income and 66 basis points of gross margin expansion in the most recent quarter Cencora Q3 2026 Earnings Release. The balance sheet, while temporarily loaded with acquisition debt up to a 2.5x leverage ratio, is structurally sound, with maturities termed out to 2056 and a $7.0 billion revolver backstop Cencora SEC Filings. Furthermore, the dividend policy is immaculate, consuming less than 20% of adjusted earnings, leaving abundant free cash flow for rapid deleveraging and share repurchases Cencora Investor Relations.
The perceived risks—specifically the Walgreens equity sell-down and the GLP-1 margin dilution—appear to be either misunderstood by the broader market or adequately priced in. The WBA sell-off is a function of Walgreens' distress, not Cencora's, and the core prime vendor partnership remains fully operational and contractually secured through 2029 WBA Form 10-K. While GLP-1 medications do compress percentage margins, they still contribute positive absolute gross profit dollars and enhance Cencora's overall relevance in the pharmaceutical supply chain Cencora Investor Relations.
For the diligent equity investor, Cencora’s current ~15.8x Forward P/E multiple offers a compelling entry point into a foundational healthcare asset Cencora Q3 2026 Presentation. If management executes its stated goal of paying down $3.9 billion in debt by 2028 while maintaining its mid-teens EPS growth trajectory, the stock is uniquely positioned for both earnings-driven appreciation and multiple expansion as it closes the valuation gap with its peers.
For informational purposes only; not investment advice.