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McKesson (MCK) Q3 Earnings: Stock Likely to Disappoint?
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McKesson Corporation (MCK - Free Report) , one of the largest healthcare services providers, is scheduled to report third-quarter fiscal 2017 results on Jan 25, after the market closes. Last quarter the company missed earnings estimates by 3.6%.
McKesson’s share price has underperformed the Zacks classified Medical-Dental Supplies industry in the last 12 months due to drug pricing trends. The stock has lost 9.3% over this time frame, compared to a decline of 4.8% for the industry.
McKesson’s track record has been mixed in the last four quarters with an average negative surprise of 4.4%. While the company beat estimates in two of the last four quarters, it missed estimates in the other two. Let's see how things are shaping up for this announcement.
Pricing War to Impact Results This Quarter
McKesson has been facing challenging conditions over the last few quarters owing to lower generic launches, pricing challenges and customer transitions.
While a tough 2017 was on the cards, concurrent with the second-quarter results, the company lowered its annual guidance further due to softness in pricing of drugs which became pronounced in the second quarter. Not only did the company experienced fewer drugs with price increases but also much lower rates of rising prices compared to FY16.
Customer consolidation in the industry has resulted in further losses for the company. A fewer generic launches further affected the business. Consequently, McKesson expects branded pharmaceutical pricing trends to be below than those experienced in FY16. In particular, competitive pricing is adversely impacting business in the pharmaceutical distribution business in the U.S.
We note that McKesson competes with the likes of AmerisourceBergen Corporation and Cardinal Health (CAH - Free Report) . Moreover, reimbursement cuts imposed by the U.K. government to retail pharmacy rates as well as the U.K's decision to exit the EU has unfavorably impacted Celesio's operating performance.
Accounting for the competitive customer pricing and softness in brand inflation, McKesson narrowed its earnings guidance to the range of $12.35 to $12.85 from the previous expectations of $13.43–$13.93.
What Our Model Indicates
Our proven model does not conclusively show that McKesson will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.03%. This is because the Most Accurate estimate is pegged at $2.88, while the Zacks Consensus Estimate stands at $2.97. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: McKesson currently carries a Zacks Rank #4. As it is, we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Here are some companies you may want to consider instead as our model shows that they have the right combination of elements to post an earnings beat this quarter:
AbbVie Inc. (ABBV - Free Report) is expected to release results on Jan 27. The company has an Earnings ESP of +0.83% and a Zacks Rank #3.
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McKesson (MCK) Q3 Earnings: Stock Likely to Disappoint?
McKesson Corporation (MCK - Free Report) , one of the largest healthcare services providers, is scheduled to report third-quarter fiscal 2017 results on Jan 25, after the market closes. Last quarter the company missed earnings estimates by 3.6%.
McKesson’s share price has underperformed the Zacks classified Medical-Dental Supplies industry in the last 12 months due to drug pricing trends. The stock has lost 9.3% over this time frame, compared to a decline of 4.8% for the industry.
McKesson’s track record has been mixed in the last four quarters with an average negative surprise of 4.4%. While the company beat estimates in two of the last four quarters, it missed estimates in the other two. Let's see how things are shaping up for this announcement.
Pricing War to Impact Results This Quarter
McKesson has been facing challenging conditions over the last few quarters owing to lower generic launches, pricing challenges and customer transitions.
While a tough 2017 was on the cards, concurrent with the second-quarter results, the company lowered its annual guidance further due to softness in pricing of drugs which became pronounced in the second quarter. Not only did the company experienced fewer drugs with price increases but also much lower rates of rising prices compared to FY16.
Customer consolidation in the industry has resulted in further losses for the company. A fewer generic launches further affected the business. Consequently, McKesson expects branded pharmaceutical pricing trends to be below than those experienced in FY16. In particular, competitive pricing is adversely impacting business in the pharmaceutical distribution business in the U.S.
We note that McKesson competes with the likes of AmerisourceBergen Corporation and Cardinal Health (CAH - Free Report) . Moreover, reimbursement cuts imposed by the U.K. government to retail pharmacy rates as well as the U.K's decision to exit the EU has unfavorably impacted Celesio's operating performance.
Accounting for the competitive customer pricing and softness in brand inflation, McKesson narrowed its earnings guidance to the range of $12.35 to $12.85 from the previous expectations of $13.43–$13.93.
What Our Model Indicates
Our proven model does not conclusively show that McKesson will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.03%. This is because the Most Accurate estimate is pegged at $2.88, while the Zacks Consensus Estimate stands at $2.97. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: McKesson currently carries a Zacks Rank #4. As it is, we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
McKesson Corp. Price and Consensus
McKesson Corp. Price and Consensus | McKesson Corp. Quote
Stocks That Warrant a Look
Here are some companies you may want to consider instead as our model shows that they have the right combination of elements to post an earnings beat this quarter:
AbbVie Inc. (ABBV - Free Report) is expected to release results on Jan 27. The company has an Earnings ESP of +0.83% and a Zacks Rank #3.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>