Shares of McKesson Corporation MCK scaled a new 52-week high of $566.16 on May 20, 2024, before closing the session marginally lower at $564.
So far this year, this Zacks Rank #3 (Hold) company has gained 21.9% compared with the 2.9% growth of the industry and the 11.6% rise of the S&P 500 composite.
Over the past five years, the company registered earnings growth of 14.7% compared with the industry’s 12.7% rise. The company’s long-term expected growth rate of 13.5% compares with the industry’s growth projection of 11.3%. McKesson’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same in one quarter, the average surprise being 8.4%.
McKesson is witnessing an upward trend in its stock price, prompted by its robust Biologics business. The optimism led by a solid fourth-quarter performance and improving demand for healthcare are expected to contribute further. However, stiff competition and weaker generic pharmaceutical pricing trends persist.
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Let’s delve deeper.
Key Growth Drivers
Strength in Biologics: Investors are optimistic about McKesson’s robust Biologics business. Independent specialty pharmacy, Biologics by McKesson, has been making impressive progress lately. In April, Day One Biopharmaceuticals selected the pharmacy as a specialty pharmacy provider for OJEMDA (tovorafenib), which has been approved for the treatment of pediatric low-grade glioma.
Improving Demand for Healthcare: Following significant market disruption in the past three years due to COVID, the medical sector has been witnessing improving demand across several verticals, especially surgeries. McKesson is also benefiting from a recovery in demand-driving volumes, thus raising optimism. Moreover, the improving prices of products are boosting sales. The company launched Project Oasis in April, an initiative aimed at advancing health equity for at-risk populations in underserved communities. Rising demand for extended and primary care is expected to drive the top line for the Medical-Surgical business in fiscal 2025.
Strong Q4 Results: McKesson’s robust fourth-quarter results buoy optimism. The company recorded a robust uptick in its overall top line. The revenue uptick was primarily driven by growth in the U.S. Pharmaceutical segment, resulting from increased prescription volumes, including higher volumes from specialty products, retail national account customers and GLP-1 medications.
Downsides
Weak Trends: McKesson distributes generic pharmaceuticals, which are subject to price fluctuation. The Distribution Solutions segment continues to experience weak generic pharmaceutical pricing trends. Continued volatility, unfavorable pricing trends, reimbursement of generic drugs and significant fluctuations in the nature, frequency and magnitude of generic pharmaceutical launches could have an adverse impact on McKesson.
Stiff Competition: Distribution Solutions faces stiff competition in terms of price and service from various full-line, short-line and specialty wholesalers, service merchandisers, self-warehousing chains, manufacturers engaged in direct distribution, third-party logistics companies and large-payer organizations. Moreover, the company depends on few suppliers for its products. As a result, it is not in a position to negotiate pricing.
McKesson Corporation Price
McKesson Corporation price | McKesson Corporation Quote
Key Picks
Some better-ranked stocks in the broader medical space are DaVita Inc. DVA, Align Technology ALGN and Medpace MEDP.
DaVita, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 13.6%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 29.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita’s shares have risen 33.4% compared with the industry’s 11.2% growth year to date.
Medpace, sporting a Zacks Rank of 1 at present, has an estimated long-term growth rate of 17.9%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.8%.
Medpace’s shares have risen 28.3% year to date compared with the industry’s 4.9% growth.
Align Technology, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 6.9%. Its earnings surpassed estimates in three of the trailing four quarters and missed the same in one quarter, delivering an average surprise of 5.9%.
ALGN’s shares have declined 0.9% year to date against the industry’s 2.8% growth.
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