- Oops!Something went wrong.Please try again later.
McKesson Corporation MCK is well-poised for growth backed by multi-year strategic growth initiative and distribution solutions segment. However, an increase in branded price remains a concern.
The stock has gained 45.7%, compared with the industry’s rally of 40.8% in a year’s time. Also, the S&P 500 Index has rallied 52.4% in the same time frame.
McKesson — with a market capitalization of $30.38 billion — is a health care services and information technology company. It anticipates earnings to improve 7.2% over the next five years. Moreover, the company has a trailing four-quarter earnings surprise of 14.4%, on average.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Weighing on the Stock
McKesson distributes generic pharmaceuticals, which are subject to price fluctuation. The Distribution Solutions segment experienced weaker generic pharmaceutical pricing trends, which continue to persist. Per the fiscal third-quarter 2021 earnings call, on the basis of manufacturer price actions taken in January, the company is maintaining its fiscal 2021 expectation of branded price increase to be in the mid-single-digit percent range.
McKesson recently announced a multi-year strategic growth initiative focused on creating innovative new solutions that improve patient care delivery and drive incremental profits. 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.
As discussed in the fiscal first-quarter 2021 earnings call, the company remains committed to its multi-year strategic growth initiative update that is currently expected to generate approximately $400 million to $500 million in annual pre-tax gross savings. This will be substantially realized by the end of fiscal 2021.
Moreover, the company is a major player in the pharmaceutical and medical supplies distribution market. The Distribution Solutions segment caters to a wide range of customers and businesses, and stands to benefit from increased generic utilization, inflation in generics owing to several patent expirations in the next few years and an aging population.
In December 2020, McKesson started to distribute Moderna's COVID-19 vaccine within 48 hours of its Emergency Use Authorization (EUA) approval by the FDA as it is within the scope of its contract with Centers for Disease Control and Prevention. Further, throughout January 2021, the company managed to successfully distribute above 25 million doses of the COVID-19 vaccine to sites across the country. From the distribution standpoint, it remains on track to meet the US government's plan to distribute hundreds of millions of refrigerated and frozen vaccines.
Additionally, the company has been making efforts in preparation and distribution of the ancillary kits required to administer all the COVID-19 vaccines, which includes the Pfizer ultra-frozen vaccine (although Pfizer's vaccine is not distributed by McKesson). The company is producing significant number of kits every week to support 10-15 million doses and has managed to assemble enough kits to support above 250 million doses to-date.
For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $239.75 billion, indicating an improvement of 3.8% from the year-ago period. The same for adjusted earnings per share stands at $17.18, suggesting growth of 14.9% from the prior-year reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Hologic, Inc. HOLX, Hill-Rom Holdings, Inc. HRC and Cantel Medical Corp. CMD, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hologic’s long-term earnings growth rate is expected at 15.4%.
Hill-Rom Holdings’ long-term earnings growth rate is estimated at 7.3%.
Cantel Medical’s long-term earnings growth rate is estimated at 19%.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
McKesson Corporation (MCK) : Free Stock Analysis Report
Hologic, Inc. (HOLX) : Free Stock Analysis Report
HillRom Holdings, Inc. (HRC) : Free Stock Analysis Report
Cantel Medical Corp. (CMD) : Free Stock Analysis Report
To read this article on Zacks.com click here.