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

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McKessonCorporation (MCK - Free Report) is well-poised for growth, backed by strategic collaborations and strength in the Distribution Solutions segment. However, the company’s opioid-related litigation expenses are a potential threat.

Shares of this Zacks Rank #3 (Hold) company have risen 25.1% year to date compared with the industry’s 5.9% growth. The S&P 500 Index has increased 16% in the same time frame.

McKesson is a healthcare services and information technology company with a market capitalization of $63.31 billion. Its earnings are anticipated to improve 10.5% over the next five years.

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The company’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.87%. Its earnings yield of 5.8% compares favorably with the industry’s 5%.

Key Growth Drivers

Strength in Biologics: Investors are optimistic about McKesson’s robust Biologics business. Independent specialty pharmacy, Biologics by McKesson, has been making impressive progress lately. Last month, the pharmacy was selected by GSK as a specialty pharmacy provider of OJJAARA (momelotinib).

Last month, Biologics was chosen by Daiichi Sankyo, Inc. as a specialty pharmacy provider of VANFLYTA (quizartinib).

Strength in Distribution Market: McKesson is a major player in the pharmaceutical and medical supplies distribution market that raises investors’ optimism. The Distribution Solutions segment caters to a wide range of customers and businesses. It also stands to benefit from increased generic utilization and inflation in generics, driven by several patent expirations in the next few years and an aging population.

Per management, the uptick in the company’s U.S. Pharmaceutical and Medical-Surgical Solutions segments’ adjusted operating profit was driven by growth in the distribution of specialty products to providers and health systems, and distribution of ancillary supplies for the U.S. government’s COVID-19 vaccine program, respectively, in the first quarter of fiscal 2024.

Strong Q2 Results: McKesson’s robust second-quarter fiscal 2024 results buoy optimism. The company recorded strong top and bottom-line performances and strength in its U.S. Pharmaceutical, Medical-Surgical Solutions and Prescription Technology Solutions segments.


Weak Trends: McKesson distributes generic pharmaceuticals, which are subject to price fluctuation. The Distribution Solutions segment continues to experience a weaker generic pharmaceutical pricing trend. Continued volatility, unfavorable pricing trends, reimbursement of generic drugs and significant fluctuations in the nature, frequency and magnitude of generic pharmaceutical launches could have an adverse impact on McKesson.

Stiff Competition: Distribution Solutions faces stiff competition both in terms of price and service from various full-line, short-line and specialty wholesalers, service merchandisers, self-warehousing chains, manufacturers engaged in direct distribution, third-party logistics companies and large-payer organizations. Moreover, MCK depends on fewer suppliers for its products. As a result, it is not in a position to negotiate pricing.

Estimates Trend

The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $304.19 billion, indicating a 9.9% increase from the previous year’s level. The consensus mark for adjusted earnings per share is pinned at $27.23, implying a 5% year-over-year improvement.

Stocks to Consider

Some better-ranked stocks from the same medical industry are Cardinal Health (CAH - Free Report) , Merit Medical Systems (MMSI - Free Report) and Patterson Companies (PDCO - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health has an estimated long-term growth rate of 15.2%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 15.67%.

CAH’s shares haverallied 35.4% year to date.

Merit Medical has an estimated long-term growth rate of 11.5%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 14.41%.

MMSI’s shares have declined 1.4% year to date.

Patterson Companies has an estimated long-term growth rate of 9.2%. PDCO’s earnings surpassed estimates in three of the trailing four quarters and met the same once, delivering an average surprise of 8.47%.

PDCO’s shares have risen 8.8% year to date.

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