McKesson Corporation (NYSE:MCK) MCK is well-poised for growth, backed by the multi-year strategic growth initiative and strength in the distribution solutions segment. However, an increase in branded price continues to remain concerning.
Over the past six months, the stock has gained 16.1% compared with the industry’s rally of 16.8%. Also, the S&P 500 Index has rallied 17.1% in the same time frame.
McKesson — with a market capitalization of $28.78 billion — is a health care services and information technology company. It anticipates earnings growth of 7.2% over the next five years. Moreover, the company has a trailing four-quarter earnings surprise of 14.4%, on average.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Weighing on the Stock
McKesson distributes generic pharmaceuticals, which are subject to price fluctuation. The Distribution Solutions segment experienced weaker generic pharmaceutical pricing trends, which continue to persist. Per the fiscal third-quarter 2021 earnings call, on the basis of manufacturer price actions taken in January, the company is maintaining its fiscal 2021 expectation of branded price increases to be in the mid-single-digit percent range.
Key Catalysts
McKesson recently announced a multi-year strategic growth initiative focused on creating innovative 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, the company remains committed to its multi-year strategic growth initiative update, which is currently expected to generate $400-$500 million in annual pre-tax gross savings. This will likely 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.
In December, McKesson started to distribute Moderna (NASDAQ:MRNA)'s COVID-19 vaccine within 48 hours of its Emergency Use Authorization approval by the FDA as it is within the scope of its contract with the Centers for Disease Control and Prevention. Further, throughout January, McKesson managed to distribute more than 25 million doses of the COVID-19 vaccine to sites across the country. From the distribution standpoint, the company remains on track to meet the US government's plan to distribute hundreds of millions of refrigerated and frozen vaccines.
Additionally, the company has also been making efforts in the preparation and distribution of the ancillary kits required to administer all of the COVID-19 vaccines, which includes the Pfizer (NYSE:PFE) ultra-frozen vaccine (although Pfizer's vaccine is not distributed by McKesson). The company is producing a significant number of kits every week to support 10-15 million doses and has managed to assemble enough kits to support more than 250 million doses to date.
Estimates Trend
For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $239.69 billion, indicating an improvement of 3.7% from the year-ago period’s reported figure. The same for adjusted earnings per share stands at $17, suggesting growth of 13.7% from the prior-year reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are DENTSPLY SIRONA (NASDAQ:XRAY) Inc. XRAY, Abbott Laboratories (NYSE:ABT) ABT and IDEXX Laboratories, Inc. IDXX, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DENTSPLY has a projected long-term earnings growth rate of 7.3%.
Abbott has an estimated long-term earnings growth rate of 14.1%.
IDEXX Laboratories has a projected long-term earnings growth rate of 15.8%.
Legal Marijuana: An Investor’s Dream
Imagine getting in early on a young industry primed to skyrocket from $17.7 billion in 2019 to an expected $73.6 billion by 2027.
Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
Download Marijuana Moneymakers FREE >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
DENTSPLY SIRONA Inc. (XRAY): Free Stock Analysis Report
McKesson Corporation (MCK): Free Stock Analysis Report
Abbott Laboratories (ABT): Get Free Report
IDEXX Laboratories, Inc. (IDXX): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research