McKesson Corporation MCK is well poised for growth backed by strong segmental performances and solid prospects in the pharmaceutical and medical supplies distribution market. However, increasing pricing pressure remains a concern.
The stock currently carries a Zacks Rank #3 (Hold).
Shares of McKesson have gained 18.7%, outperforming the industry’s growth of 17.1% on a year-to-date basis. Moreover, the stock outpaced the S&P 500 Index’s rally of 16.5%.
What’s Weighing on the Stock?
The company has been witnessing escalating pricing pressure and entered fiscal 2020 with an assumption of branded inflation in the mid-single digits.
Fluctuations in generic pharmaceuticals, negative currency movements and intense competition in the niche space are hindering the company’s prospects.
Factors to Bolster McKesson
Being a major player in the pharmaceutical and medical supplies distribution market, McKesson continues to benefit from its position over a considerable period of time. The Distribution Solutions segment caters to a wide range of customers and businesses and stands to benefit from increased generic utilization, inflation in generics driven by several patent expirations in the next few years, and an aging population.
Notably, the company announced a multi-year strategic growth initiative update that is currently expected to generate approximately $400-$500 (up from the previously guided range of $300-$400 million) million in annual pre-tax gross savings. This will be substantially realized by the end of fiscal 2021.
McKesson continues to benefit from acquisitions and strategic collaborations, which in turn will drive the company’s growth while contributing substantially to the top line.
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 anticipated to drive increased efficiency and productivity.
Which Way Are Estimates Headed?
For 2020, the Zacks Consensus Estimate for revenues is pegged at $221.77 billion, indicating an improvement of 3.5% from the year-ago period. For adjusted earnings per share, the same stands at $14.14, suggesting growth of 4.2% from the year-ago reported figure.
Some better-ranked stocks from the broader medical space are Cardiovascular Systems, Inc. CSII, Oxford Immunotec Global PLC OXFD and Haemonetics Corp. HAE, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cardiovascular Systems has earnings growth rate for fiscal fourth quarter of 2019 of 33.3%.
Oxford Immunotec has a long-term earnings growth rate of 25%.
Haemonetics has a long-term earnings growth rate 13.5%.
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