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McKesson (MCK) Up 7.5% Since Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for McKesson Corporation MCK. Shares have added about 7.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

McKesson (MCK) Beats on Earnings in Q3, Inks Buyout Deal

McKesson Corporation (MCK) reported third-quarter fiscal 2017 (ended Dec 31, 2016) earnings of $3.03 per share, beating the Zacks Consensus Estimate of $2.95 but declining from the year-ago figure of $3.18.

Revenues, on the other hand, improved 5% year over year to $50.1 billion. However, the figure failed to meet the Zacks Consensus Estimate of $50.7 billion.

CoverMyMeds Acquisition Deal

McKesson announced that it has entered into an agreement to acquire privately owned company CoverMyMeds for approximately $1.1 billion. Columbus, OH, based CoverMyMeds provides electronic prior authorization solutions to pharmacies, providers, payers and pharmaceutical manufacturers. The transaction is expected to close in the first half of fiscal 2018.

Quarter in Detail

McKesson operates through two segments – Distribution Solutions and Technology Solutions. All growth rates given below are on a year-over-year basis.

At Distribution Solutions, revenues grew 5.0% to $49.4 billion. North America pharmaceutical distribution and services reported sales of $41.7 billion, up 5.0%, reflecting market growth and acquisitions. Revenues were, however, hit by branded to generic conversions. Revenues from International pharmaceutical distribution and services were up 3.0% to $6.2 billion driven by acquisitions and market growth. Medical-Surgical distribution and services generated sales of $1.6 billion, down 1.0%.

However, revenues from the Technology Solutions business were flat at $0.7 billion. Quarterly revenues boosted by growth in other technology businesses were offset by the decline in hospital software business.

Fiscal 2017 Outlook

McKesson expects earnings per share in the range of $9.80 to $10.30 for fiscal 2017. Revenues from Distribution Solutions are projected to grow in the mid single digits. Revenues from Technology Solutions are expected to be down slightly on a year-over-year basis.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

McKesson Corporation Price and Consensus

 

McKesson Corporation Price and Consensus | McKesson Corporation Quote

VGM Scores

At this time, McKesson' stock has an average Growth score of 'C', though it is lagging a bit on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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