McKesson Corporation (MCK - Free Report) is well poised for growth backed by strong segmental performances and solid prospects in the pharmaceutical and medical supplies distribution market.
Moreover, the company has an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 3.9%. Notably, this trend of consecutive beats underlines its operating efficiency.
However, McKesson continues to witness a competitive market for selling generic pharmaceuticals in the United States. In a year’s time, this Zacks Rank #3 (Hold) company has underperformed its industry. The stock has lost almost 25.7% compared with the industry’s 6.7% decline.
What’s Deterring the Stock?
Fluctuations in generic pharmaceuticals, negative currency movements and intense competition in the niche space mar the company’s prospects. This apart, McKesson entered fiscal 2019 with an assumption of branded inflation in the mid-single digits.
Additionally, during fiscal 2018, McKesson witnessed increased price competition in the independent retail pharmacy channel.
Why Should You Retain the Stock?
In recent times, McKesson has been focusing on creating innovative new solutions that improve patient care delivery and providing a boost to incremental profit growth. The plan is to implement differential pricing for brand, generic, specialty, biosimilar and OTC (Over-the-counter) drug classes in line with services offered to both customers and manufacturers.
For investors’ notice, McKesson announced a multi-year strategic growth initiative update that is expected to generate approximately $300-$400 million in annual pre-tax gross savings. This will be substantially realized by the end of fiscal 2021.
Management aims to increase efficiency, accelerate execution and improve long-term performance through its initiatives that consist of multiple growth pillars. Late 2018, management at McKesson announced that the company has made solid progress in its operating model and other cost-out initiatives. Based on strong business strategies, the company is expected to drive increased efficiency and productivity.
Additionally, in January, Genpact extended its tie-up with McKesson, wherein the former deployed digitally-enabled advanced technologies such as Artificial Intelligence and machine learning to simplify and standardize McKesson’s finance operations.
Which Way Are Estimates Headed?
The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at $3.68, reflecting a year-over-year increase of 5.4%. The same for revenues is pinned at $53.4 billion, indicating an increase of 3.5% year over year.
For fiscal 2019, the Zacks Consensus Estimate for revenues stands at $215.02 billion, reflecting a 3.2% improvement year over year. The same for earnings mirrors 7.2% growth year over year.
McKesson Corporation Price and Consensus
Although cutthroat competition remains a near-term headwind, McKesson seems to be well positioned for growth backed by strong business plans and robust surprise trend. The company’s long-term earnings growth rate of 7.1% also supports our view.
Want More From the Industry?
A few better-ranked stocks from the MedTech space are ABIOMED, Inc. (ABMD - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Wright Medical Group N.V. (WMGI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ABIOMED’s long-term expected earnings growth rate is projected at 27.7%.
IDEXX Laboratories delivered a positive earnings surprise in each of the trailing four quarters, the average being 7.2%.
Wright Medical Group has a long-term expected earnings growth rate of 11.3%.
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