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McKesson (MCK) Q2 Earnings: Stock Likely to Disappoint?

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McKesson CorporationMCK is scheduled to report second-quarter fiscal 2017 results on Oct 27, after the market closes . Last quarter the company delivered a positive earnings surprise of 4.48%.

Although the company has beaten estimates thrice in the last four quarters, it has an average negative earnings surprise of 0.60%. Let's see how things are shaping up for this announcement.

MCKESSON CORP Price and EPS Surprise

MCKESSON CORP Price and EPS Surprise | MCKESSON CORP Quote

Factors Influencing this Quarter

McKesson's distribution solutions segment has been recording steady growth on the back of a robust performance of the U.S. pharmaceutical business over the last few quarters. We expect the trend to continue this quarter as well.

On the flip side, unfavorable foreign exchange movements may continue to hurt sales. In addition, McKesson expects weaker generic pricing trends in the pharmaceuticals business and negative impact from customer consolidation in the healthcare supply chain to adversely impact results. Moreover, operating performance of Celesio, a wholly owned subsidiary of McKesson, is expected to be disappointing through fiscal 2017.

Nevertheless, McKesson has been actively pursuing deals and acquisitions to drive growth. The company closed seven acquisitions during the last quarter, including those of Biologics, Vantage Oncology and UDG Healthcare. These acquisitions should contribute to the top line in the third quarter.

What Our Model Indicates

Our proven model does not conclusively show that McKesson will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.31%. This is because the Most Accurate estimate is pegged at $3.02, while the Zacks Consensus Estimate stands at $3.06.

Zacks Rank: McKesson currently carries a Zacks Rank #4. As it is, we caution against Sell-rated stocks (#4 or #5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies you may want to consider instead as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Ariad Pharmaceuticals Inc. ARIA is expected to report earnings on Nov 1.The company has an Earnings ESP of +5.26% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

ImmunoGen, Inc. IMGN has an Earnings ESP of +5.41% and a Zacks Rank #3. The company is scheduled to report third-quarter results on Oct 28.

Infinity Pharmaceuticals, Inc. INFI has an Earnings ESP of +5.81% and a Zacks Rank #1. The company is scheduled to report results on Nov 3.

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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