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Here's Why You Should Retain McKesson (MCK) Stock for Now

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McKesson Corporation (MCK - Free Report) is well poised for growth backed by multi-year strategic growth initiative and distribution solutions segment. However, generic pharmaceutical price fluctuation remains a concern.

The stock has gained 4.9%, against the industry’s decline of 5.4% in a year’s time. Also, the S&P 500 Index has rallied 13% in the same timeframe.

McKesson — with a market capitalization of $24.47 billion — is a health care services and information technology company. It anticipates earnings to improve 6.3% over the next five years. Moreover, the company has a trailing four-quarter earnings surprise of 7.4%, on average.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).

Factor Hurting the Stock

McKesson distributes generic pharmaceuticals that are subject to price fluctuation. The Distribution Solutions segment continues to witness weak generic pharmaceutical pricing trends, which can have an adverse impact on the stock.

Key Catalysts

McKesson recently announced a multi-year strategic growth initiative, focused on creating innovative new solutions that improve patient care delivery and drive incremental profits. The plan is to implement differential pricing for brand, generic, specialty, biosimilar and OTC (Over-the-counter) drug classes in line with services offered to both customers and manufacturers.

As discussed in the fiscal first-quarter 2021 earnings call, McKesson continues to remain focused when it comes to its multi-year strategic growth initiative update that is currently expected to generate approximately $400 million to $500 million in annual pre-tax gross savings. This will be substantially realized by the end of fiscal 2021.

Moreover, the company is a major player in the pharmaceutical and medical supplies distribution market. The Distribution Solutions segment caters to a wide range of customers and businesses, and stands to benefit from increased generic utilization, inflation in generics courtesy of several patent expirations in the next few years, and an aging population.

McKesson Canada division plays a crucial role in providing solutions to manufacturers, pharmacies and hospitals, which cater to needs of patients in Canada every day. In fact, the company is expanding its pharmacy services to include virtual health offerings, home delivery in certain markets, and increased online pharmacy capabilities.

Estimates Trend

For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $238.93 billion, indicating an improvement of 3.4% from the year-ago period. The same for adjusted earnings per share stands at $15.13, suggesting growth of 1.2% from the prior-year reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space include West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and PerkinElmer, Inc. (PKI - Free Report) . While both PerkinElmer and Thermo Fisher sport a Zacks Rank of 1 (Strong Buy), West Pharmaceuticals carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PerkinElmer has a projected long-term earnings growth rate of 17.4%.

Thermo Fisher has an estimated long-term earnings growth rate of 15%.

West Pharmaceutical has a projected long-term earnings growth rate of 17.4%.

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