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McKesson (MCK) to Report Q4 Earnings: What's in the Cards?
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McKesson Corporation (MCK - Free Report) is scheduled to report fourth-quarter fiscal 2024 results on May 7, after market close.
The company delivered an earnings surprise of 9.79% in the last reported quarter. Its earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 9.11%.
MCK’s top line has been gaining primarily on the back of the rapid adoption of GLP-1 weight loss drugs. These drugs have been boosting its sales for the past few quarters. Moreover, rising demand for specialty pharmaceuticals is another key factor for revenue growth.
Meanwhile, a recovery in primary care visit aided top-line growth during the third quarter. Moreover, the company’s expansion of its distribution centers and adoption of artificial intelligence (AI) in its services and products have also been boosting its top line in recent times. However, the company’s bottom line continues to reflect the higher cost of sales due to increased sales of lower-margin products.
Q4 Estimates
The Zacks Consensus Estimate for earnings is pegged at $6.34 per share, implying a decline of 11.8% from the prior-year quarter’s reported figure. The same for revenues is pinned at $78.72 billion, indicating a surge of 14.2% year over year.
McKesson derives the majority of its revenues from the U.S. Pharmaceutical segment that distributes drugs and other healthcare-related products in the United States. Prescription volume, a key operating metric for this segment, is likely to have reflected a stable growth like the last reported quarter. Continued robust demand for specialty pharmaceuticals, including cancer therapies, should have been a key driver for prescription volume during the fourth quarter.
Although we expect GLP-1 medication prescription volume to grow in the soon-to-be-reported quarter, it will likely reflect a slower growth due to a higher base for comparison. An inflection in the volume of this medication started in the year-ago quarter, creating the higher base.
The company’s new distribution centers and expansion in Canada are likely to have acted as tailwinds during the quarter. However, the divestiture of its European business is likely to have led to the loss of sales.
However, branded-to-generic conversions might have weighed on its performance. The lower margin for GLP-1 medications will continue to hurt the gross margin during the fourth quarter.
Our estimate for this segment’s revenues is pegged at $69.3 billion, indicating an improvement of 12.4% from the prior-year quarter’s level.
Prescription Technology Solutions
This segment connects patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies and solves medication access, affordability and adherence challenges for patients.
Revenues in this segment are likely to have reflected higher volumes due to seasonality. The company has been seeing a large influx in volumes in many programs during the fourth quarter of every year due to the annual reset of insurance policies. Meanwhile, the trend of increased demand for access solutions, led by newly launched products, is also likely to have continued during the fourth quarter.
Our top-line estimate for the Prescription Technology Solutions segment is pegged at $1.2 billion, indicating an improvement of 1.3% from the prior-year quarter’s level..
Medical Surgical Solutions
The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics and other services to healthcare providers. The segment reflected a sequential recovery in primary care visits during the last reported quarter. The trend is likely to have continued in the fourth quarter.
Although recovery in care visits looks promising, the patient volume is likely to have acted as a headwind. The segmental result will also reflect the decline in lower contributions from the U.S. government's COVID-19 vaccine program.
Our top-line estimate for the Medical Surgical Solutions segment is pegged at $2.66 billion, indicating a decline of 1.2% from the prior-year quarter’s level..
A weaker illness season this fiscal year (compared to the previous year) is likely to have acted as a headwind for operating profit growth during the fourth quarter. Meanwhile, interest expenses are anticipated to have followed multiple rate hikes over the past couple of years, thereby hurting the bottom line.
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for McKesson this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here, as you will see below.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($6.30 per share) and the Zacks Consensus Estimate, is -0.67% for McKesson. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
McKesson is one of the leading drug distributors in the United States, with a strong distribution network and services to help healthcare providers as well as patients. These factors, along with a focus on innovation, have been driving the stock for the past several years. The company continues to focus on improving its efficiency through investments in automation and technology, which should be the key growth driver for the stock in the future.
The company strengthened its distribution network with the addition of two new distribution centers with innovative technology in the United States earlier this year. This should increase the efficiency in distribution of drugs, especially specialty pharmaceuticals. It has built a differentiated set of assets to cater to the growing Oncology and Biopharma markets. Moreover, the company’s multi-year plan to modernize distribution centers across Canada looks promising for revenue growth.
MCK’s network currently consists of more than 50,000 pharmacies and approximately 900,000 providers, making it one of the most crucial drug distributors as it can provide access to a large patient population. This scale should help the company to attract more drug-makers to commercialize their drug, thereby driving revenue growth.
Meanwhile, MCK is adopting the latest technological innovation, AI, in a large way to help its customers. The AI-driven capabilities are being included to assist healthcare providers with revenue cycle management and clinical solutions evaluation. The AI services will also help them navigate the complex insurance coverage and reimbursement processes more efficiently. The company also plans to deploy AI for automatic clinical note generation and several supply-chain use cases.
Our Take
MCK’s shares have risen 43.4% in the past year compared with the industry’s growth of 3.5%. The outperformance can be attributed to top and bottom-line improvements on the back of promising initiatives taken by the company.
Image Source: Zacks Investment Research
The company’s plans should help it continue on its uptrend going forward. Per the Zacks Style Score, a Zacks proprietary method to evaluate stocks, the company looks undervalued (Value Score: A) with a strong chance of continued uptrend (Momentum Score: A). However, the growth will likely be modest (Growth Score: D).
Although the Zacks Rank, coupled with the style scores for MCK, indicates that the stock may perform well going forward, we caution against any new investment bet in the company at present. Moreover, the Earnings ESP and Zacks Rank combination also does not conclusively predict an earnings beat for McKesson this time around. However, investors may continue to hold the stock in their portfolio.
Stocks to Consider
Here are some medical stocks worth considering as these have the right combination of elements to post an earnings beat this reporting cycle.
The stock increased 0.7% so far this year. FMS’ earnings beat estimates in the last reported quarter. It has a trailing four-quarter average earnings surprise of 25.81%.
Alcon (ALC - Free Report) has an Earnings ESP of +1.88% and a Zacks Rank of 2 at present.
The stock has risen 1.9% so far this year. ALC’s earnings beat estimates in the last reported quarter. It has a trailing four-quarter average earnings surprise of 7.35%.
RadNet (RDNT - Free Report) has an Earnings ESP of +35.71% and a Zacks Rank #2 at present.
The stock surged 47.2% so far this year. RDNT’s earnings beat estimates in the last reported quarter. It has a trailing four-quarter average earnings surprise of 110.93%.
Image: Bigstock
McKesson (MCK) to Report Q4 Earnings: What's in the Cards?
McKesson Corporation (MCK - Free Report) is scheduled to report fourth-quarter fiscal 2024 results on May 7, after market close.
The company delivered an earnings surprise of 9.79% in the last reported quarter. Its earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 9.11%.
MCK’s top line has been gaining primarily on the back of the rapid adoption of GLP-1 weight loss drugs. These drugs have been boosting its sales for the past few quarters. Moreover, rising demand for specialty pharmaceuticals is another key factor for revenue growth.
Meanwhile, a recovery in primary care visit aided top-line growth during the third quarter. Moreover, the company’s expansion of its distribution centers and adoption of artificial intelligence (AI) in its services and products have also been boosting its top line in recent times. However, the company’s bottom line continues to reflect the higher cost of sales due to increased sales of lower-margin products.
Q4 Estimates
The Zacks Consensus Estimate for earnings is pegged at $6.34 per share, implying a decline of 11.8% from the prior-year quarter’s reported figure. The same for revenues is pinned at $78.72 billion, indicating a surge of 14.2% year over year.
McKesson Corporation Price and EPS Surprise
McKesson Corporation price-eps-surprise | McKesson Corporation Quote
Factors to Drive Segmental Performance in Q4
U.S. Pharmaceutical
McKesson derives the majority of its revenues from the U.S. Pharmaceutical segment that distributes drugs and other healthcare-related products in the United States. Prescription volume, a key operating metric for this segment, is likely to have reflected a stable growth like the last reported quarter. Continued robust demand for specialty pharmaceuticals, including cancer therapies, should have been a key driver for prescription volume during the fourth quarter.
Although we expect GLP-1 medication prescription volume to grow in the soon-to-be-reported quarter, it will likely reflect a slower growth due to a higher base for comparison. An inflection in the volume of this medication started in the year-ago quarter, creating the higher base.
The company’s new distribution centers and expansion in Canada are likely to have acted as tailwinds during the quarter. However, the divestiture of its European business is likely to have led to the loss of sales.
However, branded-to-generic conversions might have weighed on its performance. The lower margin for GLP-1 medications will continue to hurt the gross margin during the fourth quarter.
Our estimate for this segment’s revenues is pegged at $69.3 billion, indicating an improvement of 12.4% from the prior-year quarter’s level.
Prescription Technology Solutions
This segment connects patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies and solves medication access, affordability and adherence challenges for patients.
Revenues in this segment are likely to have reflected higher volumes due to seasonality. The company has been seeing a large influx in volumes in many programs during the fourth quarter of every year due to the annual reset of insurance policies. Meanwhile, the trend of increased demand for access solutions, led by newly launched products, is also likely to have continued during the fourth quarter.
Our top-line estimate for the Prescription Technology Solutions segment is pegged at $1.2 billion, indicating an improvement of 1.3% from the prior-year quarter’s level..
Medical Surgical Solutions
The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics and other services to healthcare providers. The segment reflected a sequential recovery in primary care visits during the last reported quarter. The trend is likely to have continued in the fourth quarter.
Although recovery in care visits looks promising, the patient volume is likely to have acted as a headwind. The segmental result will also reflect the decline in lower contributions from the U.S. government's COVID-19 vaccine program.
Our top-line estimate for the Medical Surgical Solutions segment is pegged at $2.66 billion, indicating a decline of 1.2% from the prior-year quarter’s level..
A weaker illness season this fiscal year (compared to the previous year) is likely to have acted as a headwind for operating profit growth during the fourth quarter. Meanwhile, interest expenses are anticipated to have followed multiple rate hikes over the past couple of years, thereby hurting the bottom line.
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for McKesson this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here, as you will see below.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($6.30 per share) and the Zacks Consensus Estimate, is -0.67% for McKesson. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: McKesson currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-Term Growth Potential
McKesson is one of the leading drug distributors in the United States, with a strong distribution network and services to help healthcare providers as well as patients. These factors, along with a focus on innovation, have been driving the stock for the past several years. The company continues to focus on improving its efficiency through investments in automation and technology, which should be the key growth driver for the stock in the future.
The company strengthened its distribution network with the addition of two new distribution centers with innovative technology in the United States earlier this year. This should increase the efficiency in distribution of drugs, especially specialty pharmaceuticals. It has built a differentiated set of assets to cater to the growing Oncology and Biopharma markets. Moreover, the company’s multi-year plan to modernize distribution centers across Canada looks promising for revenue growth.
MCK’s network currently consists of more than 50,000 pharmacies and approximately 900,000 providers, making it one of the most crucial drug distributors as it can provide access to a large patient population. This scale should help the company to attract more drug-makers to commercialize their drug, thereby driving revenue growth.
Meanwhile, MCK is adopting the latest technological innovation, AI, in a large way to help its customers. The AI-driven capabilities are being included to assist healthcare providers with revenue cycle management and clinical solutions evaluation. The AI services will also help them navigate the complex insurance coverage and reimbursement processes more efficiently. The company also plans to deploy AI for automatic clinical note generation and several supply-chain use cases.
Our Take
MCK’s shares have risen 43.4% in the past year compared with the industry’s growth of 3.5%. The outperformance can be attributed to top and bottom-line improvements on the back of promising initiatives taken by the company.
Image Source: Zacks Investment Research
The company’s plans should help it continue on its uptrend going forward. Per the Zacks Style Score, a Zacks proprietary method to evaluate stocks, the company looks undervalued (Value Score: A) with a strong chance of continued uptrend (Momentum Score: A). However, the growth will likely be modest (Growth Score: D).
Although the Zacks Rank, coupled with the style scores for MCK, indicates that the stock may perform well going forward, we caution against any new investment bet in the company at present. Moreover, the Earnings ESP and Zacks Rank combination also does not conclusively predict an earnings beat for McKesson this time around. However, investors may continue to hold the stock in their portfolio.
Stocks to Consider
Here are some medical stocks worth considering as these have the right combination of elements to post an earnings beat this reporting cycle.
Fresenius Medical Care (FMS - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock increased 0.7% so far this year. FMS’ earnings beat estimates in the last reported quarter. It has a trailing four-quarter average earnings surprise of 25.81%.
Alcon (ALC - Free Report) has an Earnings ESP of +1.88% and a Zacks Rank of 2 at present.
The stock has risen 1.9% so far this year. ALC’s earnings beat estimates in the last reported quarter. It has a trailing four-quarter average earnings surprise of 7.35%.
RadNet (RDNT - Free Report) has an Earnings ESP of +35.71% and a Zacks Rank #2 at present.
The stock surged 47.2% so far this year. RDNT’s earnings beat estimates in the last reported quarter. It has a trailing four-quarter average earnings surprise of 110.93%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.