McKesson Corporation MCK is expected to benefit from the multi-year strategic growth initiative for generating approximately $300-$400 million in annual pre-tax gross savings. However, regulatory headwinds in the United Kingdom and Canada have been strong deterrents.
Over the past year, shares of this Zacks Rank #3 (Hold) company have lost 24.8%, wider than the industry’s decline of 14.6%. The current level is also more than the S&P 500 index’s decline of 6.4% only.
Here we take a quick look at the primary factors that have been plaguing McKesson and henceforth, discuss the company’s prospects that ensure the stock’s near-term recovery.
Global Concerns Weigh on McKesson
In Canada, McKesson’s Rexall business faced some challenges in the recent past. Developmental actions taken last year are not materializing as fast as the company anticipated, thereby resulting in a weak performance.
Per management, reimbursement and minimum wage headwinds impact the entire Canadian supply chain and retail pharmacy operations extensively. Similar woes prevail in the United Kingdom, which have affected the company’s fiscal 2019 performance.
Moreover, the company apprehends the hindrances to persist in the quarters ahead. In fact, the company’s European Pharmaceutical Solutions revenues were $6.6 billion for the second quarter of fiscal 2019, down 2% due to a negative impact of $68 million from currency rate movements.
Why Should Investors Hold McKesson?
McKesson is a major player in the pharmaceutical and medical supplies distribution market.
The company’s distribution solutions segment kept up its performance in fiscal 2018 despite lower pricing trends and customer consolidation. The Distribution Solutions segment caters to a wide range of customers and businesses and stands to benefit from an increased generic utilization, inflation in generics, driven by several patent expirations in the next few years and an aging population.
At the end of second-quarter fiscal 2019, Plasma and Biologics distribution business witnessed solid growth. As a whole, revenue uptick from distribution solutions business rose significantly, contributing to the company’s entire revenue stream. The upside is attributable to market growth and acquisitions.
Which Way are Estimates Headed?
For the third quarter of fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at $3.17 per share. Same for the revenues is pegged at $55.27 billion, showing a 3.1% improvement year over year.
For fiscal 2019, the Zacks Consensus Estimate for revenues stands at $214.42 billion, reflecting a year-over-year rise of 2.9%. Same for earnings is pegged at $13.41, reflecting growth of 6.3% year over year.
McKesson Corporation Price and Consensus
McKesson Corporation Price and Consensus | McKesson Corporation Quote
A few better-ranked stocks in the broader medical space are Veeva Systems Inc VEEV, Integer Holdings Corporation ITGR and OPKO Health, Inc OPK.
Veeva Systems’ long-term earnings growth rate is projected at 19.5%. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Integer surpassed the Zacks Consensus Estimate in the trailing four reported quarters, the average being 9.7%. It currently carries a Zacks Rank #2 (Buy).
OPKO Health’s long-term earnings growth rate is predicted at 12%. The stock has a Zacks Rank of 1.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>
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
To read this article on Zacks.com click here.
Zacks Investment Research