McKesson’s Streamlined Operations Demonstrate Resistance to Cost Inflation; Raising FVE to $336

McKesson posted solid growth in adjusted revenue and operating profit in its fiscal second quarter, lessening our concerns around cost inflation. In our model, we maintain our revenue growth estimate of 4.9% for the fiscal year, which falls within the guidance range of 3%-7%. However, we are raising our fair value estimate to $336 from $298 per share, as we have lowered our explicit forecast for selling, general, and administrative expenses as a percentage of revenue by 10 basis points because the firm is now fully divested of its Europe operations (save Norway) and is seeing the results of a streamlined operating margin. We have also slightly lowered our estimated share count to account for the trajectory of the share repurchase program.