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5 Reasons Why McKesson Deserves a Place in Your Portfolio

Zacks Equity Research
Updated

McKesson Corporation MCK is a name to reckon with in the current MedTech space as a top-performing stock. Improvement in price performance and strong fundamentals indicate bullish run. If investors haven’t yet taken advantage of the stock’s share price appreciation, it’s time they add it to their portfolio for good returns.

The company’s impressive performance in 2017 accounts for its potential to sustain the momentum in the upcoming period. A long-term expected earnings growth rate of 8% reflects great promise for the stock.

Why an Attractive Pick?

Share Price Appreciation

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A glimpse at the company’s price trend reveals that the stock has had an encouraging trip on the bourse in the last three months. McKesson returned a whopping 17%, comparing favorably with the S&P 500 index’s rally of 9.4%. The metric is also higher than the industry’s growth of 14.1%.

 

Northbound Estimate Revisions

The stock has seen the Zacks Consensus Estimate for current-year earnings being revised upward by three analysts, over the past 60 days. Thus, absence of any single southbound revision highlights analysts’ optimism in the company and boosts positive sentiment for the stock. During the same time frame, the consensus mark for adjusted earnings inched up 0.6% to $12.23. For 2018, the Zacks Consensus Estimate for earnings has been raised 2.2% in the last couple of months to $13.14.

The company sports a Zacks Rank #2 (Buy), indicating robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

McKesson Corporation Price and Consensus

 

McKesson Corporation Price and Consensus | McKesson Corporation Quote

Strong Growth Prospects

McKesson is a major player in the pharmaceutical and medical supplies distribution market. The company’s Distribution Solutions segment retained its impressive performance in fiscal 2017 despite weak pricing trends and customer consolidation.

The Distribution Solutions segment caters to a wide range of customers and businesses. The segment benefits from increased generic utilization, inflation in generics driven by several patent expirations in the next few years, the Celesio acquisition and an aging population. At the end of fiscal 2018, distribution solutions business revenue growth is expected to increase by mid-single digits year over year.

Deal with CVS Health

McKesson recently announced that it has completed the acquisition of RxCrossroads from CVS Health Corp CVS. RxCrossroads is a provider of tailored services to pharmaceutical and biotechnology manufacturers. The transaction is valued at $735 million and has been entirely funded by cash on hand.

The buyout is expected to enhance McKesson's existing commercialization solutions for manufacturers of branded, specialty, generic and biosimilar drugs, including comprehensive patient support services, custom pharmacy solutions and third-party logistics. This will enable the company to expand end-to-end offerings for manufacturers (read more: McKesson Buys RxCrossroads from CVS Health for $735 Million).

Fiscal 2018 Outlook

The company’s strong guidance for fiscal 2018 looks impressive. McKesson expects GAAP earnings per share in the range of $4.80-$6.90 for the fiscal year ending Mar 31, 2018. Adjusted Earnings for the same are expected in the range of $11.80-$12.50.

Other Picks

Other top-ranked stocks in the market at large are Integer Holdings Corporation ITGR and Intuitive Surgical, Inc. ISRG.

Integer Holdings has a long-term expected earnings growth rate of 15%. The stock carries a Zacks Rank #2.

Intuitive Surgical has a long-term expected earnings growth rate of 9.6%. The stock carries a Zacks Rank #2.

More Stock News: This Is Bigger than the iPhone!

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Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. 

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Intuitive Surgical, Inc. (ISRG) : Free Stock Analysis Report
 
Integer Holdings Corporation (ITGR) : Free Stock Analysis Report
 
CVS Health Corporation (CVS) : Free Stock Analysis Report
 
McKesson Corporation (MCK) : Free Stock Analysis Report
 
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Zacks Investment Research