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Mckesson (MCK) to Report Q2 Earnings: A Beat in the Cards?

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McKesson CorporationMCK , one of the largest healthcare service providers, is scheduled to release second-quarter fiscal 2018 results on Oct 26.

In the last reported quarter, the company's earnings of $2.46 missed the Zacks Consensus Estimate of $2.81. Also, in the last four quarters, McKesson's earnings missed the same at an average of 0.46%. Let's see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that McKesson is likely to beat on earnings because it has the perfect combination of two key ingredients.

Zacks ESP: McKesson has an Earnings ESP of +0.72% as the Most Accurate estimate is pegged at $2.80, while the Zacks Consensus Estimate is $2.78. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: McKesson currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of McKesson's Zacks Rank #3 and ESP of +2.15% makes us reasonably confident of an earnings beat.

McKesson Corporation Price and EPS Surprise

McKesson Corporation Price and EPS Surprise | McKesson Corporation Quote

What's Driving the Better-Than-Expected Earnings?

McKesson is a major player in the pharmaceutical and medical supplies distribution market. Management expects to gain from a gradually stabilizing generic and branded market. The company's distribution solutions segment performed favorably in recent times despite weak pricing trends and customer consolidation. Also, McKesson projects earnings per share in the range of $11.80-$12.50 for fiscal 2018. Distribution Solutions business revenue growth is expected to increase in mid-single digits year over year. Considering the company's performance in the last quarter and promising guidance, we expect a similar trend in the yet-to-be reported quarter as well. Furthermore, McKesson is likely to benefit from the recent acquisition of CoverMyMeds LLC.

In the international segment, management expects percentage revenue growth in the mid-single digits on a constant currency basis in 2018. Per management, international business is likely to be impacted by additional U.K. reimbursement cuts although the incremental cuts that will impact fiscal 2018 are significantly smaller than those in fiscal 2017.

However, continued volatility, unfavorable pricing trends, reimbursement of generic drugs, significant fluctuations in the nature, frequency and magnitude of generic pharmaceutical launches might have an adverse impact on McKesson. Also, a competitive landscape adds to the woes.

Other Stocks to Consider

Here are some other companies you may consider as our model shows that these also have the right combination of elements to post an earnings beat in the upcoming quarter:

INC Research Holdings, Inc INCR has an Earnings ESP of +2.02% and carries a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

Medpace Holdings Inc MEDP has an Earnings ESP of +0.47% and carries a Zacks Rank #3.

Henry Schein, Inc HSIC has an Earnings ESP of +1.23% and carries a Zacks Rank #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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