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Here's Why You Should Add McKesson (MCK) to Your Portfolio 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 currently Zacks Rank #2 (Buy) company have risen 27.4% in the past year compared with the industry’s 9% growth. The S&P 500 Index has increased 20.6% in the same time frame.
McKesson is a healthcare services and information technology company with a market capitalization of $64.58 billion. Its earnings are anticipated to improve 10.5% over the next five years.
Image Source: Zacks Investment Research
The company’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.87%. Its earnings yield of 5.6% compares favorably with the industry’s 4.2%.
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. The pharmacy was chosen by AstraZeneca and SpringWorks Therapeutics as the distribution partner for their respective drugs, TRUQAP (capivasertib) and OGSIVEO (nirogacestat), earlier this month.
Last month, the pharmacy was selected by Takeda as a specialty pharmacy provider of FRUZAQLA (fruquintinib). In September, it was chosen by GSK as a specialty pharmacy provider of OJJAARA (momelotinib). In August, Biologics was selected 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 segment’s adjusted operating profit was driven by growth in the distribution of specialty products to providers and health systems, higher contribution from generics and growth of GLP-1 medication 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.
Downsides
Weak Trends: McKesson distributes generic pharmaceuticals, which are subject to price fluctuations. 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 and 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 $304.67 billion, indicating a 10.1% increase from the previous year’s level. The consensus mark for adjusted earnings per share is pinned at $27.26, implying a 5.1% year-over-year improvement.
Some other top-ranked stocks in the broader medical space areDaVita Inc. (DVA - Free Report) , Merit Medical Systems, Inc. (MMSI - Free Report) and Integer Holdings Corporation (ITGR - Free Report) .
DaVita, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 17.3%. DVA’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 36.6%. You can seethe complete list of today’s Zacks #1 Rank stocks here.
DaVita’s shares have risen 38% compared with the industry’s 9% growth in the past year.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.5%. MMSI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 14.4%.
Merit Medical’s shares have risen 12.3% compared with the industry’s 9.5% growth in the past year.
Integer Holdings, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.9%.
Integer Holdings’ shares have risen 40.4% compared with the industry’s 0.3% growth in the past year.
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Here's Why You Should Add McKesson (MCK) to Your Portfolio Now
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 currently Zacks Rank #2 (Buy) company have risen 27.4% in the past year compared with the industry’s 9% growth. The S&P 500 Index has increased 20.6% in the same time frame.
McKesson is a healthcare services and information technology company with a market capitalization of $64.58 billion. Its earnings are anticipated to improve 10.5% over the next five years.
Image Source: Zacks Investment Research
The company’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.87%. Its earnings yield of 5.6% compares favorably with the industry’s 4.2%.
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. The pharmacy was chosen by AstraZeneca and SpringWorks Therapeutics as the distribution partner for their respective drugs, TRUQAP (capivasertib) and OGSIVEO (nirogacestat), earlier this month.
Last month, the pharmacy was selected by Takeda as a specialty pharmacy provider of FRUZAQLA (fruquintinib). In September, it was chosen by GSK as a specialty pharmacy provider of OJJAARA (momelotinib). In August, Biologics was selected 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 segment’s adjusted operating profit was driven by growth in the distribution of specialty products to providers and health systems, higher contribution from generics and growth of GLP-1 medication 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.
Downsides
Weak Trends: McKesson distributes generic pharmaceuticals, which are subject to price fluctuations. 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 and 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 $304.67 billion, indicating a 10.1% increase from the previous year’s level. The consensus mark for adjusted earnings per share is pinned at $27.26, implying a 5.1% year-over-year improvement.
McKesson Corporation Price
McKesson Corporation price | McKesson Corporation Quote
Other Key Picks
Some other top-ranked stocks in the broader medical space areDaVita Inc. (DVA - Free Report) , Merit Medical Systems, Inc. (MMSI - Free Report) and Integer Holdings Corporation (ITGR - Free Report) .
DaVita, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 17.3%. DVA’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 36.6%. You can seethe complete list of today’s Zacks #1 Rank stocks here.
DaVita’s shares have risen 38% compared with the industry’s 9% growth in the past year.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.5%. MMSI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 14.4%.
Merit Medical’s shares have risen 12.3% compared with the industry’s 9.5% growth in the past year.
Integer Holdings, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.9%.
Integer Holdings’ shares have risen 40.4% compared with the industry’s 0.3% growth in the past year.