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McKesson (MCK) Up 5.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for McKesson (MCK - Free Report) . Shares have added about 5.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is McKesson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

McKesson Q4 Earnings and Revenues Surpass Estimates

McKesson Corporation’s reported fourth-quarter fiscal 2020 adjusted earnings per share of $4.27, which beat the Zacks Consensus Estimate of $4.10 per share by 4.1%. Further, the bottom line improved 15.7% on a year-over-year basis.

For full-year fiscal 2020, the company reported adjusted EPS of $14.95, up 10.2% from the prior-year period. The figure beat the consensus mark by 1.3%.

Revenue Details

Revenues came in at $58.54 billion, which outpaced the Zacks Consensus Estimate by 5.6%. However, the figure improved 11.6% year over year.

For full-year fiscal 2020, the company delivered revenues of $231.05 billion, up 7.8% from that of fiscal 2019. The figure surpassed the Zacks Consensus Estimate by 1.3%.

Q4 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment totaled $46.27 billion, up 13.1% year over year. Per management, the upside was primarily driven by branded pharmaceutical price increases and higher volumes from retail national account customers. However, branded to generic conversions partially offset the upside.

At the European Pharmaceutical Solutions segment, revenues amounted to $7.15 billion, up 5.8% year over year. Further, the metric increased9% at constant currency (cc) on the back of growth in the pharmaceutical distribution business.

Revenues at the Medical-Surgical Solutions segment totaled $2.21billion, up 12.8% year over year. Growth in the Primary Care business, courtesy of higher volume of pharmaceutical products and a stronger influenza season, drove the upside.

Revenues at the Other segment were $2.91 billion in the fiscal fourth quarter, improving 3% year over year and 4% at cc. Growth in the Canadian and MRxTSbusinesses contributed to the upside.

Margins

Gross profit in the reported quarter was $3.34 billion, up 4.2% on a year-over-year basis. Meanwhile, gross margin was 5.7% of net revenues, down 40 bps.

Operating income in the quarter was $869 million, against the year-ago quarter’s operating loss of$569 million.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $772 million, up 3% from the prior-year quarter. Adjusted operating margin was 1.7% at the segment.

Adjusted operating profit at the European Pharmaceutical Solutions segment amounted to $75 million, soared226% from the year-ago quarter. Meanwhile, the adjusted operating margin at the segment was 1.1%.

The Medical-Surgical segment had adjusted operating profit of $170 million, which declined 1% from the year-ago quarter. Adjusted operating margin was 7.7% at the segment.

Adjusted operating profit was $242 million at the Other segment, down 6% from the prior-year quarter.

Financial Update

In the quarter under review, cash and cash equivalents came in at $4.02 billion, up 34.7% from the prior-year quarter.

Cumulative cash flow from operating activities for the fiscal fourth quarter came in at $4.37 billion, up from $4.04 billion in the year-ago period.

Fiscal 2021 Guidance

Per management, the fiscal 2021 guidance reflects the impact of COVID-19 pandemic and investments.

For fiscal 2021, McKesson projects adjusted earnings per share in the range of $13.95-$14.75. The Zacks Consensus Estimate for the same is pegged at $15.10.

The company projects revenues to grow in the range of 2-4%.
Free cash flow is estimate to range between $2.3 billion and $2.7 billion.

The company anticipates adjusted earnings per share growth in the second half of fiscal 2021.

Per management, long-term fundamentals remain robust and the company continues to execute strategic growth initiatives.

Company Update

On Mar 10, 2020, McKesson completed the separation of its investment in Change Healthcare.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -27.91% due to these changes.

VGM Scores

Currently, McKesson has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise McKesson has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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