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Here's Why You Should Retain McKesson (MCK) Stock for Now

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Zacks Equity Research
·4 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. However, generic pharmaceutical price fluctuation remains a concern.

The stock has gained 22%, compared with the industry’s growth of 17.7% in a year’s time. Also, the S&P 500 Index has rallied 15.1% in the same timeframe.

McKesson — with a market capitalization of $28.55 billion — is a health care services and information technology company. It anticipates earnings to improve 6.3% 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 #3 (Hold).

Factor Hurting the Stock

McKesson distributes generic pharmaceuticals that are subject to price fluctuation. The Distribution Solutions segment continues to witness weak generic pharmaceutical pricing trends, which can have an adverse impact on the stock.

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, McKesson 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 $238.99 billion, indicating an improvement of 3.4% from the year-ago period. The same for adjusted earnings per share stands at $15.18, suggesting growth of 8.2% from the prior-year reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space include Cardinal Health, Inc. CAH, Merit Medical Systems, Inc. MMSI and Patterson Companies, Inc. PDCO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health has a projected long-term earnings growth rate of 5.4%.

Merit Medical has an estimated long-term earnings growth rate of 12%.

Patterson Companies has a projected long-term earnings growth rate of 8.9%.

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