McKesson (MCK) Hits 52-Week High: What's Driving the Stock?
Shares of McKesson Corporation MCK scaled a new 52-week high of $429.75 on Jun 30, before closing the session slightly lower at $427.31.
Over the past year, this Zacks Rank #3 (Hold) stock has gained 29.7% compared with 20.3% growth of the industry and a 16.5% rise of the S&P 500 composite.
Over the past five years, the company registered earnings growth of 15.4% compared with the industry’s 8.6% rise. The company’s long-term expected growth rate of 10.8% compares with the industry’s growth projection of 12.2%. McKesson’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once, the average surprise being 4.5%.
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McKesson is witnessing an upward trend in its stock price, prompted by its robust Biologics business. The optimism led by a solid fourth-quarter fiscal 2023 performance and its strength in the distribution market are expected to contribute further. However, stiff competition and weaker generic pharmaceutical pricing trends persist.
Let’s delve deeper.
Key Growth Drivers
Strength in Biologics: Investors are optimistic about McKesson’s robust Biologics business. Independent specialty pharmacy, Biologics by McKesson, has been making impressive progress lately. In April, the pharmacy was selected by Reata Pharmaceuticals as the sole specialty pharmacy provider for SKYCLARYS (omaveloxolone), the first and only treatment for Friedreich’s ataxia.
In February, the pharmacy was selected by Lilly as a specialty pharmacy provider for JAYPIRCA (pirtobrutinib) for the treatment of adult patients with relapsed or refractory mantle cell lymphoma after at least two lines of systemic therapy, including a Bruton's tyrosine kinase inhibitor.
Strength in Distribution Market: McKesson is a major player in the pharmaceutical and medical supplies distribution market, which raises investors’ optimism. The Distribution Solutions segment caters to a wide range of customers and businesses and stands to benefit from increased generic utilization, inflation in generics driven by several patent expirations in the next few years and an aging population.
Per the fiscal fourth-quarter 2023 earnings call in May, the company’s U.S. and international distribution businesses continued to play a key role in the pandemic response.
Strong Q4 Results: McKesson’s robust fourth-quarter fiscal 2023 results buoy optimism. The company recorded robust top-line and bottom-line performances and strength in its U.S. Pharmaceutical and Prescription Technology Solutions segments.
Downsides
Weak Trends: McKesson distributes generic pharmaceuticals, which are subject to price fluctuation. The Distribution Solutions segment continues to experience weaker generic pharmaceutical pricing trends. Continued volatility, unfavorable pricing trends, reimbursement of generic drugs and significant fluctuations in the nature, frequency and magnitude of generic pharmaceutical launches could have a material adverse impact on McKesson.
Stiff Competition: Distribution Solutions faces stiff competition both in terms of price and service from various full-line, short-line and specialty wholesalers, service merchandisers, self-warehousing chains, manufacturers engaged in direct distribution, third-party logistics companies and large-payer organizations. Moreover, the company depends on fewer suppliers for its products. As a result, it is not in a position to negotiate pricing.
Key Picks
Some better-ranked stocks in the broader medical space are Hologic, Inc. HOLX, HealthEquity, Inc. HQY and Boston Scientific Corporation BSX.
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 5.1% for fiscal 2024. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average being 27.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hologic has gained 15.4% compared with the industry’s 12.4% rise in the past year.
HealthEquity, sporting a Zacks Rank #1 at present, has an estimated long-term growth rate of 22%. HQY’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 9.1%.
HealthEquity has gained 9.5% against the industry’s 13.8% decline over the past year.
Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.5%. BSX’s earnings surpassed estimates in two of the trailing four quarters and missed in the other two, the average surprise being 1.9%.
Boston Scientific has gained 42.3% against the industry’s 21.7% decline over the past year.
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HealthEquity, Inc. (HQY) : Free Stock Analysis Report
