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McKesson (MCK) Up 5.1% Since Q3 Earnings: What's Driving It?

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Shares of McKesson Corporation MCK have rallied 5.1% versus the industry's 3.4% rise since its third-quarter fiscal 2022 earnings released on Feb 2.

The renowned health care services and information technology company has a market capitalization of $40.71 billion. Its earnings for third-quarter fiscal 2022 surpassed the Zacks Consensus Estimate by 14.3%.

This Zacks Rank #2 (Buy) stock has a favorable VGM Score of A. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.

The rally was largely driven by robust performance across the company’s four segments. Strong position in the Distribution market also continued to favor the stock. The company’s raised earnings per share (EPS) guidance for fiscal 2022 raises investor confidence.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Let’s take a quick look at the important catalysts to understand this positive trend.

Key Growth Drivers

Q3 Upsides: McKesson ended third-quarter fiscal 2022 with better-than-expected results. The quarter’s results exhibited double-digit adjusted operating profit growth throughout all four segments, reflecting strength in the fundamentals across the company’s businesses. The company has raised its fiscal 2022 EPS outlook, courtesy of robust fiscal third-quarter performance and higher contribution from the U.S. government’s COVID-19 vaccine distribution and kitting programs. McKesson has played a key role in the COVID-19 response efforts in the United States and abroad, through the distribution of COVID-19 vaccines, ancillary supply kits and COVID-19 tests.

Strong Player in Distribution Market: McKesson is a major player in the pharmaceutical and medical supplies distribution market. Per the third-quarter fiscal 2022 earnings call, McKesson’s U.S. and international distribution businesses continued to play a key role in the pandemic response. The company’s growing partnership with the U.S. government's COVID-19 vaccine distribution efforts is indicative of operational excellence and capabilities. The company also continues to reap benefits from COVID-related programs in Canada and European operations. It is worth noting that through December 2021, the company distributed more than 81 million vaccines to administration sites in select markets throughout these geographies.

Acquisitions & Collaborations: The market is upbeat about McKesson’s continued efforts to generate growth through its active pursuits of deals, divestitures and acquisitions. Per the third-quarter fiscal 2022 earnings release, McKesson completed the sale of the remaining share of GEHE Pharma Handel and Alliance Healthcare Deutschland joint venture to Walgreens Boots Alliance (WBA) in January 2022. Apart from this, the company closed a deal (signed in December 2021) to sell its Austrian business to Quadrifolia Management GmbH. During fiscal 2021, the company brought together its RelayHealth Pharmacy, CoverMyMeds (a wholly-owned subsidiary of its Prescription Technology Solutions subunit) and RxCrossroads businesses.

Favorable Growth Parameters

For 2022, McKesson has an expected earnings growth rate of 38.97% compared with the industry’s projected 9.57% growth. Meanwhile, revenues are expected to grow 9.75% on a year-over-year basis compared with the industry’s estimated 8.17% growth.

McKesson has a current cash flow growth rate of 3.71% compared with the industry’s growth rate of 7.37%.

McKesson raised its dividend five times in the past five years, with its payout growing 9.3% over the period. MCK’s payout ratio is currently at 8% of earnings.

Other Key Picks

Other top-ranked stocks in the broader medical space are Henry Schein, Inc. HSIC, Owens & Minor, Inc. OMI and AmerisourceBergen Corporation ABC, each sporting a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%.

Henry Schein has outperformed the industry over the past year. HSIC has gained 37.7% compared with the industry’s 12.5% rise over the past year.

Owens & Minor has a long-term earnings growth rate of 23.6%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 32.4%, on average.

Owens & Minor has outperformed the industry over the past year. OMI has gained 35.5% against a 14.2% industry decline in the said period.

AmerisourceBergen has a long-term earnings growth rate of 8.2%. In the trailing four quarters, AmerisourceBergen’s earnings surpassed estimates in three and missed in one, delivering an average surprise of 2.3%.

AmerisourceBergen has outperformed its industry in the past year, gaining 37.3% versus the industry’s 12.4% rise.


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