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McKesson (MCK) Issues Strong Preliminary Results for Q1

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McKesson Corporation (MCK - Free Report) declared preliminary results for the first quarter of fiscal 2019. The company projects adjusted earnings per share in the range of $2.85-$2.95. The Zacks Consensus Estimate for earnings is pegged at $2.67, which is below the guidance.    

The company also reaffirmed fiscal 2019 guidance. McKesson expects adjusted earnings per share of $13.00-$13.80. The Zacks Consensus Estimate is pegged at $13.33, which is within the guidance. Per management, the fiscal 2019 outlook represents mid- to high-single digit percentage growth year over year, indicating stable market conditions.

Free cash flow is expected at around $3.0 billion. The guidance projects full-year adjusted tax rate in the range of 21-23%, which may vary from quarter to quarter.

McKesson Corporation Price and Consensus

 

However, following the announcement, the company’s shares inched down1.8% in the last trading session and closed at $135.80. Not to forget, during fourth-quarter earnings call, management announced that the U.S. Pharmaceutical and Specialty Solutions is expected to deliver low- to mid-single digit revenue growth. Per management, European Pharmaceutical Solutions is likely to deliver flat to mid-single digit revenue growth in fiscal 2019. Additionally, Medical-Surgical Solutions is expected to deliver low-double digit revenue growth.

In the past year, shares of McKesson have declined 17.4% against the industry’s rise of 5.6%. The current level is also lower than S&P 500 index’s gain of 12%.

Major Factors to Drive Results

McKesson has been actively pursuing deals, divestitures and acquisitions to drive growth. Recently, the company has signed a definitive agreement to acquire Medical Specialities Distributors for $800 million. The deal is expected to close in the first half of fiscal 2019. Management expects the deal to expand the company’s manufacturer value proposition in specialty capabilities.

However, the company distributes generic pharmaceuticals, which are subject to price fluctuations. The Distribution Solutions segment had experienced weaker generic pharmaceutical pricing trends, which continue to persist. Continued volatility, unfavorable pricing trends, reimbursement of generic drugs, significant fluctuations in the nature, frequency and magnitude of generic pharmaceutical launches can have a material adverse impact on McKesson’s prospects.

Zacks Rank & Key Picks

McKesson has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are Genomic Health , Abiomed and Stryker Corporation (SYK - Free Report) .

Genomic Health has an expected earnings growth rate of 187.5% for the current quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abiomed has a projected long-term earnings growth rate of 27%. The stock sports a Zacks Rank #1.

Stryker has a projected long-term earnings growth rate of 9.7%. The stock carries a Zacks Rank #2 (Buy).

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