Healthcare services provider McKesson Corporation (MCK) missed the consensus revenue estimate by 0.7% in the third quarter. On the other hand, its EPS beat Wall Street's estimate by 8.5%.
MCK’s CEO Brian Tyler said, “McKesson delivered another solid quarter, driven by the dedication of our talented associates committed to advancing healthcare for all. Our performance was highlighted by execution across our scaled distribution businesses and differentiated capabilities in the oncology and biopharma services platforms.”
The company has raised its 2023 adjusted EPS guidance to $25.75 to $26.15 from $24.45 to $24.95. “This consistently solid performance, combined with our outlook, reinforces our ability to deliver on our financial targets, resulting in compelling value creation for all stakeholders,” he added.
On September 29, 2022, MCK announced the signing of an agreement in principle to extend its partnership with CVS Health to distribute pharmaceuticals to mail-order and specialty pharmacies, retail pharmacies, and distribution centers through June 2027.
CEO Brian Tyler said, “We are privileged to extend our partnership of more than 20 years to continue developing value propositions for patients utilizing our diverse set of differentiated assets and capabilities.”
Billionaire investor Warren Buffett’s Berkshire Hathaway (BRK.B) picked up 2.92 million shares of MCK in the first quarter and added 276K more in the second quarter.
The company is scheduled to pay a quarterly dividend of $0.54 on April 3, 2023. Its annual dividend of $2.16 yields 0.60% on the current share price. It has a four-year average yield of 0.91%.
Its dividend payouts have increased at an 8.1% CAGR over the past three years and a 10.3% CAGR over the past five years. The company has grown its dividend payments for 15 consecutive years.
MCK’s revenue grew at a CAGR of 6.8% over the past three years. The company’s EBIT grew at a CAGR of 15.4% over the past three years. In addition, its EBITDA grew at a CAGR of 8.7% in the same time frame.
MCK’s stock has gained 17.8% in price over the past nine months and 35.6% over the past year to close the last trading session at $362.58. Wall Street analysts expect the stock to hit $428.91 in the near term, indicating a potential upside of 18.3%.
Here’s what could influence MCK’s performance in the upcoming months:
Strategic Acquisition
On September 19, 2022, MCK announced that it had signed an agreement to acquire Rx Savings Solutions (RxSS). MCK’s CEO Brian Tyler said, “We expect the acquisition of Rx Savings Solutions to accelerate McKesson’s growth priority in biopharma services by extending our ecosystem of differentiated medication access solutions to patients.”
Robust Financials
MCK’s revenues increased 2.7% year-over-year to $70.49 billion for the third quarter ended December 31, 2022. Its adjusted U.S. Pharmaceutical revenues increased 12.5% year-over-year to $61.93 billion. The company’s adjusted earnings rose 3% from the prior-year period to $972 million.
In addition, its adjusted EPS came in at $6.90, representing an increase of 12.2% year-over-year. Also, its adjusted income from continuing operations before interest expense and income taxes rose 9.4% from the prior-year quarter to $1.39 billion.
Favorable Analyst Estimates
Analysts expect MCK’s EPS and revenue for fiscal 2023 to increase 8.2% and 4.5% year-over-year to $25.63 and $275.82 billion, respectively. Its EPS and revenue for fiscal 2024 are expected to increase 3% and 3.7% year-over-year to $26.41 and $285.89 billion, respectively.
High Profitability
MCK’s trailing-12-month net income margin is 1.15% compared to the negative industry average. Likewise, its trailing-12-month EBIT margin is 1.54%, compared to the negative industry average. Furthermore, the stock’s trailing-12-month levered FCF margin is 1.81% compared to the negative industry average.
Discounted Valuation
In terms of forward non-GAAP P/E, MCK's 14.14x is 30.1% lower than the 20.24x industry average. Its forward P/S of 0.18x is 96.3% lower than the 4.86x industry average. Also, the stock's 10.35x trailing-12-month EV/EBITDA is 24.5% lower than the 13.69x industry average.
POWR Ratings Show Promise
MCK has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MCK has an A grade for Value, consistent with its discounted valuation.
It has a B grade for Quality, in sync with its high profitability. In addition, favorable analyst estimates justify its B grade for Sentiment.
MCK is ranked first out of 80 stocks in the Medical – Services industry. Click here to access MCK’s Growth, Momentum, and Stability ratings.
Bottom Line
On the back of a solid third quarter, MCK updated its outlook for fiscal 2023 as it now expects higher adjusted EPS.
Given MCK’s robust financials, strong growth, solid dividend payouts, favorable analyst estimates, high profitability, and discounted valuation, it could be wise to buy this medical stock now.
How Does McKesson Corporation (MCK) Stack up Against Its Peers?
MCK has an overall POWR Rating of A, equating to a Strong Buy rating. Check out these other stocks within the Medical - Services industry with an A (Strong Buy) or (Buy) rating: HealthStream, Inc. (HSTM), Cardinal Health, Inc. (CAH), and AmerisourceBergen Corporation (ABC).
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MCK shares were unchanged in premarket trading Monday. Year-to-date, MCK has declined -3.34%, versus a 7.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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