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Can Core Business Unit Fuel McKesson (MCK) Q4 Earnings?

Zacks Equity Research

McKesson Corporation’s MCK fourth-quarter fiscal 2019 results are scheduled to release on May 8.

In the last reported quarter, the company delivered a positive earnings surprise of 6.9%. Further, it has an average four-quarter positive surprise of 3.9%.

Let’s take a look at how things are shaping up prior to this announcement.

Which Way Are Q4 Estimates Headed?

The Zacks Consensus Estimate for McKesson’s fiscal fourth-quarter earnings is pegged at $3.66, indicating an improvement of 4.9% from the year-ago quarter. The same for revenues stands at $55.35 billion, suggesting growth of 3.3% from the year-ago reported figure.

Core Business Unit to Drive Q4 Results

McKesson’s U.S. Pharmaceutical and Specialty Solutions segment is likely to act as a key catalyst in bolstering the company’s fiscal fourth-quarter results. Notably, the segment is likely to gain momentum on the back of its branded, generic and over-the-counter pharmaceuticals.

This apart, the business line is likely to be a major top-line contributor in the to-be-reported quarter, driven by market growth, which might include better-than-expected results in oncology-related pharmaceuticals and acquisitions.

McKesson Corporation Price and EPS Surprise


McKesson Corporation Price and EPS Surprise | McKesson Corporation Quote

Other Factors at Play

European Pharmaceutical Solutions

The company is likely report higher European Pharmaceutical revenues in the fiscal fourth-quarter possibly driven by better-than-expected performance outside the U.K. However, currency rate movements might have a negative impact on the results.

The Zacks Consensus Estimate for European Pharmaceutical's third-quarter revenues is pegged at $7.03 billion, indicating a sequential improvement of 1.8% from the year-ago quarter.

Medical Surgical Solutions

This segment is likely to exhibit a rise in revenues in the to-be-reported quarter, primarily on the back of strong market growth, incremental sale from the Medical Specialties Distributors (MSD) acquisition and benefits from an ongoing shift to lower cost sites of care. 

For the quarter to be reported, the Zacks Consensus Estimate for the segment’s sales stands at $2.02 billion, suggesting a sequential improvement of 0.3% from the yar-ago reported figure. 

Other Segment

This segment, which includes McKesson Canada, McKesson Prescription Technology Solutions and Change Healthcare, is likely to witness better-than-expected performance in the fiscal fourth quarter. Expected organic growth and mitigation actions in Canada might have driven the anticipated improvement.

However, price fluctuation of generic pharmaceuticals along with stiff competition in the MedTech space might impact the company’s overall performance.

Further, the company estimates adjusted income from operations to decline in the low-single digit on a year-over-year basis.

What Our Quantitative Model Suggests

Our proven model clearly indicates that a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to deliver a positive earnings surprise. This is the case here.

Earnings ESP: McKesson has an Earnings ESP of +0.48%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: McKesson carries a Zacks Rank #3 (Hold).

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.   

Other Stocks Worth a Look

Here are some other stocks worth considering from the broader medical space as these too have the right combination of elements to beat on earnings this time around.

NanoString Technologies, Inc. NSTG has an Earnings ESP of +3.08% and a Zacks Rank #3.

Aurora Cannabis Inc. ACB has an Earnings ESP of +55.88% and a Zacks Rank #3.

STERIS plc STE has an Earnings ESP of +0.35% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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