We are maintaining our Neutral recommendation on
McKesson Corporation
(
MCK
) with a target price of $90.00. The stock carries a Zacks #3 Rank
(Hold rating) in the short run.
McKesson delivered a mixed performance in the first quarter of
fiscal 2013 (ended June 30, 2012). McKesson's first quarter fiscal
2013 adjusted earnings of $1.55 per share surpassed the Zacks
Consensus Estimate of $1.49 per share. Also, the reported quarter's
adjusted earnings spiked 22% from the year-ago period driven by
higher revenues and lower share count. Revenues climbed 3% to
$30.8 billion. Revenues were, however, short of the Zacks Consensus
Estimate of $31.05 billion.
McKesson continues to expect fiscal 2013 earnings (excluding
special items) in the range of $7.05 - $7.35 share. The company
expects to generate cash flow from operating activities in the
range of $2.0 - $2.5 billion for fiscal 2013.
We note that McKesson has announced two deals recently to expand
further. In a bid to accelerate its expansion into high potential
markets and improve its services, McKesson announced earlier in the
month that it will purchase Pittsburgh based health care management
and technology service company, Med3000. The terms of the deal,
expected to close in the next few months, were not disclosed. The
deal should boost the medical billing and practice management
services of the revenue management solutions system at McKesson,
apart from facilitating its expansion into the high potential
markets.
Moreover, on September 24, 2012, McKesson announced that it has
inked a definitive agreement to acquire MedVentive, which offers
services to health systems, multi-specialty clinics and payers in
the US. Through this deal, McKesson aims to improve its
efficiencies while reducing costs. The financial terms of the deal
were not disclosed.
The impending acquisition aims to enable providers to efficiently
manage the clinical health of at-risk patient populations. McKesson
intends to attain this objective by identifying gaps in patient
care apart from providing appropriate information to doctors. Both
impending acquisition are in line with the company's Better Health
2020 strategy. The strategy is aimed at better utilization of
information technology in the field of healthcare.
We are concerned about McKesson's dependence on a small number of
customers for a significant portion of its revenues. During fiscal
2012, McKesson's ten largest customers accounted for 52% of its
total revenue. The two largest customers,
CVS Caremark
(
CVS
) and
Rite Aid Corporation
(
RAD
), accounted for 16% and 10% of total revenue, respectively.
CVS CAREMARK CP (CVS): Free Stock Analysis
Report
MCKESSON CORP (MCK): Free Stock Analysis Report
RITE AID CORP (RAD): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research