McKesson (MCK) Q1 Earnings: Stock Likely to Beat Estimates?
McKesson Corporation MCK, one of the largest healthcare service providers, is scheduled to report first-quarter fiscal 2018 results on Jul 27.
In the last reported quarter, the company’s earnings of $3.39 surpassed the Zacks Consensus Estimate of $3.04. Also, in the last four quarters, McKesson earnings beat the Zacks Consensus Estimate at an average of 3.8%. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that McKesson is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP: McKesson has an Earnings ESP of +2.15% as the Most Accurate estimate is pegged at $2.85 while the Zacks Consensus Estimate is $2.79. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: McKesson currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.
Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
The combination of McKesson’s Zacks Rank #3 and +2.15% ESP makes us reasonably confident of an earnings beat.
What’s Driving the Better-Than-Expected Earnings?
McKesson is a major player in the pharmaceutical and medical supplies distribution market. Management expects to gain from a gradually stabilizing generic and branded market. The company’s distribution solutions segment performed favorably in fiscal 2017 despite weak pricing trends and customer consolidation. Also, McKesson expects earnings per share in the range of $11.75 to $12.45 for fiscal 2018. Distribution Solutions business revenue growth is expected to increase mid-single digits year over year. Keeping in mind the last quarter performance and promising guidance, we expect a similar trend in the yet-to-be reported quarter.
McKesson Corporation Price and EPS Surprise
McKesson Corporation Price and EPS Surprise | McKesson Corporation Quote
Furthermore, McKesson is likely to benefit from the acquisition of CoverMyMeds LLC in the quarter to be reported. In this regard, we note that the acquisition was completed in the fourth quarter of fiscal 2017.
In the international segment, management expects percentage revenue growth in the mid-single digits on a constant currency basis in 2018. Per management, international business is likely to be impacted by additional U.K. reimbursement cuts although the incremental cuts that will impact fiscal 2018 are significantly smaller than those in fiscal 2017.
However, continued volatility, unfavorable pricing trends, reimbursement of generic drugs, significant fluctuations in the nature, frequency and magnitude of generic pharmaceutical launches might have an adverse impact on McKesson. Also, a competitive landscape adds to the woes.
Other Stocks to Consider
Here are some other companies you may consider as our model shows that they also have the right combination of elements to post an earnings beat in the upcoming quarter:
Becton, Dickinson and Company BDX has an Earnings ESP of +0.41% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Thermo Fisher Scientific Inc.TMO has an Earnings ESP of +0.44% and a Zacks Rank #2.
Stryker Corporation SYK has an Earnings ESP of +0.66% and a Zacks Rank #2.
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