Two analysts have raised their earnings estimates for this drug company in the past 30 days.
McKesson Corporation (MCK)
From Sure Dividend
McKesson Corporation (MCK) is one of the “Big 3” health care distribution companies in the United States. McKesson traces its lineage to 1833 when its founders began to offer wholesale chemicals and pharmaceuticals in New York City. In the nearly 200 years since, McKesson has grown into a powerhouse and today, generates $220+ billion in annual revenue and trades with a $25 billion market capitalization.
McKesson reported mixed financial results for the recent full-fiscal year. The company continues to be challenged by changing industry dynamics, but McKesson advanced on multiple key priorities in the most recent fiscal year.
Revenue for the fourth quarter came in at $52.4 billion, a 2% increase over the comparable period last year. Adjusting for currency fluctuations, the revenue gain would have been 3%. For the full year, revenue was also up 3%.
The company’s U.S. pharmaceutical business saw revenue increase 3% in Q4 thanks to strong market growth that was offset—once again—by increased generic adoption. The segment posted a 3% gain for the full fiscal year.
The European pharmaceutical business saw revenue decline 6% on a reported basis in Q4, but this was due to a 2% organic revenue gain that was more than offset by a sizable 8% currency translation headwind. Full-year revenue was flat on a reported basis and +1% adjusted for currency.
The company’s medical-surgical segment saw revenue climb 13% in Q4, although this business is a small fraction of total revenue. The full-year revenue gain for medical-surgical was 15%.
Earnings-per-share increased 6% to $3.69 on an adjusted basis in Q4, and rose 8% to $13.57 for the fiscal year. McKesson came out with guidance for fiscal 2020 of EPS in a range of $13.85 to $14.45.
The stock’s price-to-earnings ratio has ebbed and flowed in the past decade but today, it is quite cheap relative to its historical norm at 9.8. We see fair value as 13 times earnings and thus, McKesson offers a strong value to prospective shareholders. That could provide a robust 5.8% tailwind to total returns over the next five years as the stock’s valuation reverts to more normalized levels.
In addition to expected EPS growth of 7% per year and the 1.1% dividend yield, McKesson’s five-year returns are expected to reach 13.9% per year through 2024.
Ben Reynolds & Bob Ciura, Sure Dividend Newsletter, www.suredividend.com, ben@suredividend.com, July 10, 2019