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Here's Why You Should Invest in McKesson (MCK) Stock Now

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Zacks Equity Research
·3 min read
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McKesson Corporation MCK is well poised for growth backed by multi-year strategic growth initiative and distribution solutions segment.

The stock has gained 21.6%, compared with the industry’s rally of 17.3% in a year’s time. Also, the S&P 500 Index has rallied 17.6% in the same time frame.

McKesson — with a market capitalization of $29.43 billion — is a health care services and information technology company. It anticipates earnings to improve 6.6% over the next five years. Moreover, the company has a trailing four-quarter earnings surprise of 13.4%, on average.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #2 (Buy).

Key Catalysts

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 courtesy of several patent expirations in the next few years and an aging population.

Strategic collaborations continue to drive McKesson’s growth and on Aug 14, 2020, the company announced that it will extend its existing partnership with the Centers for Disease Control (CDC) to help the U.S. government’s Operation Warp Speed (OWS) team. With this collaboration, the company will become the centralized distributor of future COVID-19 vaccines and ancillary supplies required to administer vaccinations.

As directed by the U.S. government, vaccines and related supplies will be delivered to point-of-care sites across the country. Notably, OWS is a collaboration among components of the Department of Health and Human Services (HHS) and the Department of Defense. Per the partnership, OWS deals with private firms and other federal agencies, and coordinates with the existing HHS-wide efforts to expedite development, manufacture and distribution of COVID-19 vaccines, therapeutics and diagnostics.

Estimates Trend

For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $238.92 billion, indicating an improvement of 3.4% from the year-ago period. The same for adjusted earnings per share stands at $16.31, suggesting growth of 9.1% from the prior-year reported figure.

Other Stocks to Consider

Some other top-ranked stocks from the broader medical space are DENTSPLY SIRONA Inc. XRAY, Patterson Companies, Inc. PDCO and IDEXX Laboratories, Inc. IDXX, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DENTSPLY has a projected long-term earnings growth rate of 7.4%.

Patterson Companies has an estimated long-term earnings growth rate of 9.6%.

IDEXX Laboratories has a projected long-term earnings growth rate of 15.8%.

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