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Is McKesson Corporation (MCK) Poised to Beat Earnings?

CAH MCK IPXL BIIB

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McKesson Corporation (MCK - Analyst Report), a leading healthcare services provider, is scheduled to report second quarter fiscal 2014 results (ended Sep 30, 2013) on Oct 24, 2013.

Earnings beat the Zacks Consensus Estimate by 19.0% last quarter. We expect the trend to continue in the second quarter albeit not by that magnitude.

Why a Likely Positive Surprise? 

Our proven model shows that McKesson is likely to beat earnings because it has the right combination of two key ingredients. 

Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.99%. This is a meaningful and a leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #2 (Buy): Note that stocks with a Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings estimates. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

The combination of McKesson’s Zacks Rank #2 and an ESP of +0.99% make us confident of an earnings beat on Oct 24.

Factors at Play

Contributions from recent acquisitions should help combat the impact of the slowdown in generic launches. The company expects revenues in its Distribution Solutions segment to rebound in fiscal 2014 due to the addition of PSS World Medical and demand from existing customers.

We remind investors that McKesson acquired PSS World Medical in Feb 2013 for $1.9 billion. The acquisition has significantly bolstered McKesson’s Medical Surgical Distribution business thereafter. Growth in the Technology Solutions segment is also expected to accelerate from fiscal 2013 levels primarily due to the impact of acquisitions.

Concurrent with its first quarter fiscal 2014 results, McKesson upped its results and expects adjusted earnings in the range of $8.05 – $8.35 per share, up from the earlier estimate of $7.90 – $8.20 per share.

We are impressed by the company’s efforts to realign its portfolio and focus on core profitable businesses.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Cardinal Health (CAH - Analyst Report) has Earnings ESP of +2.35% and holds a Zacks Rank #2 (Buy). Cardinal Health will be reporting its third quarter earnings on Oct 31.

Impax Laboratories Inc. (IPXL - Snapshot Report) has Earnings ESP of 16.7% and holds a Zacks Rank #3 (Hold). The company will report its third quarter earnings on Nov 4.

Biogen Idec. (BIIB - Analyst Report) has Earnings ESP of +1.40% and holds a Zacks Rank #3 (Hold). Biogen will be reporting its third quarter earnings on Oct 28.
 

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