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McKesson Corporation (MCK - Analyst Report), a leading healthcare services provider, is scheduled to report fiscal third quarter 2014 results (ended Dec 31, 2013) on Jan 30, 2014.

Earnings beat the Zacks Consensus Estimate by 24 cents in the second quarter. On an average, the company has delivered a positive earnings surprise of 4.22% in the last four quarters. Let’s see how things are shaping up for the same.

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 Expected Surprise Prediction or ESP (Earnings ESP), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.54%. This is meaningful and a leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #3 (Hold): 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 an earnings announcement, especially when the company is seeing negative estimate revision momentum.

The combination of McKesson’s Zacks Rank #3 (Hold) and a positive ESP of 0.54% make us confident of an earnings beat on Jan 30.

Factors at Play

McKesson is a major player in the pharmaceutical and medical supplies distribution market. The company’s Distribution Solutions segment continues to perform well. We are impressed by the company’s efforts to realign its portfolio and focus on core profitable businesses.

We note that McKesson upped its earnings expectations to $8.40–$8.70 per share on the back of solid results in the first half of fiscal 2014, compared to the earlier estimate of $8.05–$8.35 per share. McKesson’s performance in the fiscal first half was driven by consistent growth in the pharmaceutical business in the U.S. which is expected to grow significantly in the next several years driven by increased generic utilization.

McKesson has been actively pursuing deals and acquisitions to drive growth. The company acquired PSS World Medical in Feb 2013, which is now a part of McKesson’s Medical Surgical Distribution business. The acquisition has bolstered McKesson’s Medical Surgical Distribution business. McKesson is on the lookout for more such prudent deals, which will drive growth further.

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:

Sanofi (SNY - Analyst Report) has an Earnings ESP of +2.27% and holds a Zacks Rank #3 (Hold). Sanofi will be reporting its fourth quarter earnings on Feb 6.

AbbVie Inc. (ABBV - Analyst Report) has an Earnings ESP of +2.41% and holds a Zacks Rank #3. AbbVie will be reporting its fourth quarter earnings on Jan 31.

Actavis (ACT - Analyst Report) has an Earnings ESP of +0.33% and holds a Zacks Rank #1 (Strong Buy). Actavis will be reporting its fourth quarter earnings on Feb 20.

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