McKesson Corporation MCK is well poised for growth backed by multi-year strategic growth initiative and distribution solutions segment. However, generic pharmaceutical price fluctuation remains a concern.
The stock has gained 3.4%, against the industry’s decline of 12.8% in a year’s time. Also, the S&P 500 Index has rallied 5.7% in the same timeframe.
The company — with a market capitalization of $23.97 billion — is a health care services and information technology company. It anticipates earnings to improve 6.1% over the next five years. Moreover, the company has a trailing four-quarter earnings surprise of 5.2%, on average.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Weighing on the Stock?
McKesson distributes generic pharmaceuticals that are subject to price fluctuation. The Distribution Solutions segment continue to witness weak generic pharmaceutical pricing trends, which can have an adverse impact on the stock.
Factors Driving McKesson
McKesson recently announced a multi-year strategic growth initiative, focused on creating innovative new solutions that improve patient care delivery and drive incremental profit growth. The plan is to implement differential pricing for brand, generic, specialty, biosimilar and OTC (Over-the-counter) drug classes in line with services offered to both customers and manufacturers.
Per the fiscal fourth-quarter 2020earnings call McKesson is on track with its multi-year strategic growth initiative that is currently expected to generate approximately $400 million to $500 million in annual pre-tax gross savings. This will be substantially realized by the end of fiscal 2021.
Moreover, the company is a major player in the pharmaceutical and medical supplies distribution market. The Distribution Solutions segment caters to a wide range of customers and businesses, and stands to benefit from increased generic utilization, inflation in generics driven by several patent expirations in the next few years, and an aging population.
McKesson Canada plays a crucial role in providing solutions to manufacturers, pharmacies and hospitals, which cater to the needs of patients in Canada every day. In fourth-quarter fiscal 2020, the company witnessed growth in Canadian operations.
For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $235.39 billion, indicating an improvement of 1.9% from the year-ago period. The same for adjusted earnings per share stands at $14.36, suggesting a decline of 3.9% from the prior-year reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space include Quest Diagnostics Incorporated DGX, West Pharmaceutical Services, Inc. WST and PerkinElmer, Inc. PKI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Quest Diagnostics has an estimated long-term earnings growth rate of 7.6%.
West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.
PerkinElmer has an estimated long-term earnings growth rate of 7.9%.
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Quest Diagnostics Incorporated (DGX): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.