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McKesson Corporation (MCK - Analyst Report) recently backed its outlook for fiscal 2013 (ending March 31, 2013), which was provided on April 30, 2012, while releasing its fiscal 2012 fourth-quarter and full-year results.

McKesson continues to expect fiscal 2013 earnings (excluding special items) in the range of $7.05 - $7.35 per share. The Katz Group acquisition, completed in the final quarter of fiscal 2012, is expected to contribute $0.15 to fiscal 2013 earnings. The Zacks Consensus Estimate of $7.24 per share is well within the guidance range provided by the company.

We note that McKesson operates through two segments: Distribution Solutions and Technology Solutions. The Distribution Solutions segment distributes ethical and proprietary drugs, medical-surgical supplies and equipment, and health and beauty care products throughout North America. The Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain, and strategic management software solutions, pharmacy automation for hospitals, as well as connectivity, outsourcing and other services.

The company expects Distribution Solutions revenue to grow at market rates and Technology Solutions revenues to experience the same level of growth as in fiscal 2012.

For fiscal 2013, McKesson expects to generate cash flow from operating activities in the range of $2.0 - $2.5 billion.

Our Take

McKesson, based in San Francisco, California, is a major player in the pharmaceutical and medical supplies distribution market. The company’s Distribution Solutions segment continues to perform well, with sales increasing 9.6% to $119.4 billion in fiscal 2012. This segment caters to a wide range of customers and businesses and should benefit from increased generic utilization and an aging population.

Due to the economic slowdown, a large number of people are moving toward higher-margin generic drugs, and the use of generic drugs should increase significantly over the next few years as several branded prescription drugs are scheduled to go off patent. Additionally, drugs like Pfizer’s (PFE - Analyst Report) Lipitor lost patent protection in calendar year 2011. The Distribution Solutions segment should continue witnessing growth and will remain a major contributor to total revenues.

We are also impressed by McKesson’s growth-by-acquisition strategy. The company has made several acquisitions over the past few years and is on the lookout for more prudent acquisitions to drive growth.

We have a Neutral recommendation on McKesson. Our long-term stance is in line with the Zacks #3 Rank (Hold rating) carried by the company in the short run.

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