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McKesson (MCK) Poised on Improving Generic and Brand Market

On Jul 12, we issued an updated research report on San Francisco, CA-based McKesson Corporation MCK, a health care services and information technology company.  The company currently has a Zacks Rank #2 (Buy).

Stock Performance

In the last three months, the company’s stock has gained 10.10% and comparing unfavorably with the Zacks classified Medical/Dental Supplies sub industry’s gain of 12.29%. However, a long-term expected earnings growth rate of 6.28% instills confidence in investors.

McKesson is a major player in the pharmaceutical and medical supplies distribution market. Going forward, 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. This segment caters to a wide range of customers and businesses and benefits from increased generic utilization, inflation in generics driven by several patent expirations in the next few years and an aging population. Distribution Solutions revenue growth is expected to increase in the high single-digit percentage range driven by market growth and acquisitions.

McKesson has been actively pursuing deals and acquisitions to drive growth. In Apr 2017, MckKesson acquired 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. Earlier in 2016, McKesson completed the acquisition of UK-based pharmacy business, J Sainsbury plc. The acquisitions boosted its retail pharmacy service capabilities in Ireland and the UK. These transactions strengthened the company’s specialty pharmaceutical distribution scale and broadened its oncology-focused pharmacy offerings and solutions for manufacturers and payers.

We are impressed by McKesson’s financial flexibility and strong balance sheet and efforts to return value to shareholders. During fiscal 2017, McKesson repurchased $2.3 billion of its common stock, repaid approximately $1.6 billion in long-term debt, invested $562 million internally and paid $253 million in dividends.

Other Key Picks

A few top-ranked stocks in the broader medical sector are Edwards Lifesciences Corporation EW, CryoLife, Inc. CRY and Edap Tms S.a. EDAP. Notably, Edwards Lifesciences and Edap sport a Zacks Rank #1 (Strong Buy), while CryoLife has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. Notably, the stock represents an impressive one-year return of 88.3%.

CryoLife yielded a strong return of 3.2% over the last one month. The stock delivered a positive earnings surprise of 80% in the last reported quarter.

Edap Tms represents an impressive one-year return of 28.9% for the last three months. The company delivered a solid earnings surprise of 533.3% in the last reported quarter.

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EDAP TMS S.A. (EDAP): Free Stock Analysis Report
 
Edwards Lifesciences Corporation (EW): Free Stock Analysis Report
 
CryoLife, Inc. (CRY): Free Stock Analysis Report
 
McKesson Corporation (MCK): Free Stock Analysis Report
 
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