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Here's Why You Should Retain McKesson Stock in Your Portfolio Now
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McKesson Corporation (MCK - Free Report) is well-poised for growth in the coming quarters, courtesy of its strong Biologics business. The optimism led by a decent first-quarter fiscal 2025 performance and improving demand for healthcare are expected to contribute further. However, stiff competition and weaker generic pharmaceutical pricing trends persist.
In the past one year, MCK shares have gained 36.1% compared with the industry’s rise of 3.5%. The S&P 500 has gained 27.1% in the same time frame.
The renowned healthcare services and information technology company has a market capitalization of $64.64 billion. The company projects 13.4% growth for the next five years and expects to witness continued improvements in its business. McKesson surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same once, delivering an earnings surprise of 4.8%, on average.
Image Source: Zacks Investment Research
Reasons Favoring McKesson’s Growth
Strength in Biologics: Investors are optimistic about McKesson’s robust Biologics business. Independent specialty pharmacy, Biologics by McKesson, has been making impressive progress lately. In September, Sentynl Therapeutics, Inc. selected the pharmacy as the exclusive specialty pharmacy for ZOKINVY (lonafarnib) in the United States.
In the same month, Geron Corporation selected the pharmacy as a limited specialty pharmacy provider for RYTELO (imetelstat) for the treatment of adult patients with low to intermediate-1 risk myelodysplastic syndromes.
Acquisitions & Strategic Collaborations: McKesson continues to actively pursue deals, divestitures and acquisitions to drive growth. In September, the company inked a deal to sell its Rexall and Well.ca businesses, both based in Canada, to Birch Hill Equity Partners, a Canadian private equity firm. The deal supports McKesson's strategic decision to concentrate on expanding its oncology and biopharma services while maintaining its focus on the Canadian healthcare market through distribution and biopharma.
In August, McKesson inked a definitive agreement to acquire a controlling interest (representing approximately 70% ownership) in Community Oncology Revitalization Enterprise Ventures, LLC (Core Ventures), subject to customary closing conditions. Florida Cancer Specialists & Research Institute, LLC (FCS) physicians will retain a minority interest in Core Ventures.
Core Ventures, a business and administrative services organization, was established by FCS. Following the completion of the transaction, Core Ventures will be part of the Oncology platform, and financial results will be reported within McKesson’s U.S. Pharmaceutical segment.
Mixed Q1 Results: McKesson exited the first quarter of fiscal 2025 on a mixed note, with earnings beating estimates but revenues missing the same. Revenues reflect strong momentum in the U.S. pharmaceutical segment, driven by robust demand across its offerings. The company added a large distribution customer to its portfolio, which is likely to benefit the segment in the coming quarters.
Factors That May Offset the Gains for MCK
Fiscal Q1 Headwinds: In the fiscal first quarter of fiscal 2025, McKesson witnessed several headwinds that weighed on its results. The company witnessed a decline in gross profit, as well as a contraction in gross margin, which accounted for 4.7% of net revenues, down from the prior-year quarter. Lower COVID-19-related sales and divesture of European businesses hurt top-and-bottom-line growth for the Medical-Surgical Solutions and International segments, respectively.
Stiff Competition: The Distribution Solutions segment 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, the company depends on fewer suppliers for its products. As a result, it is not in a position to negotiate pricing.
Estimate Trend
McKesson has been witnessing a positive estimate revision trend for fiscal 2025. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 1.9% north to $32.06.
The Zacks Consensus Estimate for second-quarter fiscal 2025 revenues is pegged at $89.57 billion, which indicates a 16% improvement from the year-ago reported number.
Universal Health Service has an estimated long-term growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 14.58%.
Universal Health Service has gained 56.1% so far this year compared with the industry's 48.1% rise.
Quest Diagnostics has an estimated long-term growth rate of 6.20%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.31%.
Quest Diagnostics shares have gained 13.9% so far this year compared with the industry’s 17.9% rise.
ABM Industries’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.34%.
ABM's shares have risen 27.4% so far this year compared with the industry’s 17% growth.
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Here's Why You Should Retain McKesson Stock in Your Portfolio Now
McKesson Corporation (MCK - Free Report) is well-poised for growth in the coming quarters, courtesy of its strong Biologics business. The optimism led by a decent first-quarter fiscal 2025 performance and improving demand for healthcare are expected to contribute further. However, stiff competition and weaker generic pharmaceutical pricing trends persist.
In the past one year, MCK shares have gained 36.1% compared with the industry’s rise of 3.5%. The S&P 500 has gained 27.1% in the same time frame.
The renowned healthcare services and information technology company has a market capitalization of $64.64 billion. The company projects 13.4% growth for the next five years and expects to witness continued improvements in its business. McKesson surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same once, delivering an earnings surprise of 4.8%, on average.
Image Source: Zacks Investment Research
Reasons Favoring McKesson’s Growth
Strength in Biologics: Investors are optimistic about McKesson’s robust Biologics business. Independent specialty pharmacy, Biologics by McKesson, has been making impressive progress lately. In September, Sentynl Therapeutics, Inc. selected the pharmacy as the exclusive specialty pharmacy for ZOKINVY (lonafarnib) in the United States.
In the same month, Geron Corporation selected the pharmacy as a limited specialty pharmacy provider for RYTELO (imetelstat) for the treatment of adult patients with low to intermediate-1 risk myelodysplastic syndromes.
Acquisitions & Strategic Collaborations: McKesson continues to actively pursue deals, divestitures and acquisitions to drive growth. In September, the company inked a deal to sell its Rexall and Well.ca businesses, both based in Canada, to Birch Hill Equity Partners, a Canadian private equity firm. The deal supports McKesson's strategic decision to concentrate on expanding its oncology and biopharma services while maintaining its focus on the Canadian healthcare market through distribution and biopharma.
In August, McKesson inked a definitive agreement to acquire a controlling interest (representing approximately 70% ownership) in Community Oncology Revitalization Enterprise Ventures, LLC (Core Ventures), subject to customary closing conditions. Florida Cancer Specialists & Research Institute, LLC (FCS) physicians will retain a minority interest in Core Ventures.
Core Ventures, a business and administrative services organization, was established by FCS. Following the completion of the transaction, Core Ventures will be part of the Oncology platform, and financial results will be reported within McKesson’s U.S. Pharmaceutical segment.
Mixed Q1 Results: McKesson exited the first quarter of fiscal 2025 on a mixed note, with earnings beating estimates but revenues missing the same. Revenues reflect strong momentum in the U.S. pharmaceutical segment, driven by robust demand across its offerings. The company added a large distribution customer to its portfolio, which is likely to benefit the segment in the coming quarters.
Factors That May Offset the Gains for MCK
Fiscal Q1 Headwinds: In the fiscal first quarter of fiscal 2025, McKesson witnessed several headwinds that weighed on its results. The company witnessed a decline in gross profit, as well as a contraction in gross margin, which accounted for 4.7% of net revenues, down from the prior-year quarter. Lower COVID-19-related sales and divesture of European businesses hurt top-and-bottom-line growth for the Medical-Surgical Solutions and International segments, respectively.
Stiff Competition: The Distribution Solutions segment 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, the company depends on fewer suppliers for its products. As a result, it is not in a position to negotiate pricing.
Estimate Trend
McKesson has been witnessing a positive estimate revision trend for fiscal 2025. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 1.9% north to $32.06.
The Zacks Consensus Estimate for second-quarter fiscal 2025 revenues is pegged at $89.57 billion, which indicates a 16% improvement from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Universal Health Service (UHS - Free Report) , Quest Diagnostics (DGX - Free Report) and ABM Industries (ABM - Free Report) . While Universal Health Service sports a Zacks Rank #1 (Strong Buy), Quest Diagnostics and ABM Industries carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Universal Health Service has an estimated long-term growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 14.58%.
Universal Health Service has gained 56.1% so far this year compared with the industry's 48.1% rise.
Quest Diagnostics has an estimated long-term growth rate of 6.20%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.31%.
Quest Diagnostics shares have gained 13.9% so far this year compared with the industry’s 17.9% rise.
ABM Industries’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.34%.
ABM's shares have risen 27.4% so far this year compared with the industry’s 17% growth.