Company Reports

Narrow-moat McKesson reported fourth-quarter earnings that came in higher than our expectations. Total sales of $76.4 billion were up 10.8% year over year as demand and the overall drug prescription trend remain stable and growing. Looking out to fiscal 2025, management provided a significantly better-than-expected guidance of 15%-17% revenue growth, driven by double-digit growth in both distribution and prescription technology solutions, and adjusted diluted EPS of $31.25 to $32.05 that roughly amounts to 14%-17% growth. After updating our near-term assumptions and baking in time value of money impacts, we raise our fair value estimate to $460 per share from $410.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $280 billion in sales from its US pharmaceutical segment in fiscal 2024, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are Cencora and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the US market.

Narrow-moat McKesson's strong third-quarter earnings came in above our expectations. Total sales were up 14.8% as the firm’s base distribution business continued its robust momentum. After raising our near-term assumptions and accounting for the time value of money impacts, we lift our fair value estimate to $410 per share from $400.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With over $240 billion in sales from its U.S. pharmaceutical segment in fiscal 2023, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are Cencora and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Narrow-moat McKesson reported a better-than-expected second quarter. Total sales rose 10.1% year over year as increased prescription volumes, buoyed by specialty products and GLP-1 medications (diabetes and weight loss drugs) continued to bolster the top line. We raise our fair value estimate to $400 from $394, after baking in impacts from a slightly raised full-year assumption for U.S. pharmaceutical sales and the time value of money.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With over $240 billion in sales from its U.S. pharmaceutical segment in fiscal 2023, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are Cencora and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With over $240 billion in sales from its U.S. pharmaceutical segment in fiscal 2023, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are Cencora and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With over $240 billion in sales from its U.S. pharmaceutical segment in fiscal 2023, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are AmerisourceBergen and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Narrow-moat McKesson kicked off fiscal 2024 with better-than-expected first-quarter results. Total sales were up 10.9%, driven by strong performance from its base distribution business. Management raised both top- and bottom-line guidance for the year as a result of a strong three-month performance and a healthier outlook. After updating our near-term assumptions and accounting for the time value of money, we raise our fair value estimate to $395 from $375.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With over $240 billion in sales from its U.S. pharmaceutical segment in fiscal 2023, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are AmerisourceBergen and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Narrow-moat McKesson reported fourth-quarter earnings that were in line with our expectations. Total sales were up 4.2% year over year, driven by strong domestic distribution business and prescription technology solutions. Management raised long-term segment profit growth targets for each of its segments, except international, 100 to 200 basis points as synergies from additional capabilities they have added to their businesses offset incremental costs. After baking in full-year results, time value of money, share repurchases, and raising certain assumptions based on a more favorable outlook of the company, we are raising our fair value estimate to $375 from $348.

Narrow-moat McKesson reported third-quarter earnings today that were in line with our expectations. We maintain our fair value estimate of $348 per share. Top line for the quarter was up 2.7% year over year, driven by U.S. pharmaceutical (up 12.5%) and prescription technology solutions (up 8.7%). U.S. pharmaceutical sales were bolstered by increased volume of specialty products, which usually comes at a higher cost compared with generic and branded drugs, as well as higher volume from retail accounts. Increased prescription volumes also flowed nicely into the prescription technology solutions segment as it drove higher growth for pharmacy technology services. McKesson’s other two segments saw continued weak performance, as medical-surgical solutions and international were down for the quarter 3.1% and 53.0%, respectively. Strong contributions from COVID-19 vaccines and tests in 2021 resulted in tough comparisons for medical-surgical, and we expect lower sales from both items in the future. The international segment suffered as McKesson continued its European divestitures and experienced currency headwinds. Over the long term, we expect the company’s international business to stabilize and post a normalized level of growth (low- to mid-single-digit).

After reviewing our key valuation assumptions, we have raised our fair value estimate for McKesson to $348 from $336.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With over $212 billion in sales from its U.S. pharmaceutical segment in fiscal year 2022, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are AmerisourceBergen and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

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.

McKesson is a leading domestic wholesaler of branded, generic, and specialty pharmaceutical products. With over $180 billion in annual U.S. drug distribution revenue, McKesson supplies nearly one third of the overall market, comparable to AmerisourceBergen and slightly outpacing Cardinal Health in market share. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market. The highly consolidated pharmaceutical wholesale market reflects the substantial scale-based cost advantages held by the largest players.

We are raising our fair value estimate on narrow-moat McKesson to $298 from $235 per share after we did a deeper dive into the industry and adjusted for strong first-quarter performance as well as revised fiscal year guidance. The main change in our outlook pertains to operating expenses involving labor, shipping, and facility costs. In the first quarter, the firm completed a large part of its program to permanently divest of its European distribution business in the international segment. The sale significantly reduced operating expenses as a percentage of sales year over year despite higher revenue. Though revenue was propped up by vaccine and test kit distribution contracts with the U.S. government, these contracts were extended into early- to mid-2023. The extension should smooth out the top-line impact of the European divestitures. A smaller factor in our revision is the relatively high-margin primary care business contributing to an improved sales mix. While we left our gross margin forecast stable, we lowered our five-year forecast for operating costs as a percentage of sales by 30 basis points to accommodate these trends.

McKesson is a leading domestic wholesaler of branded, generic, and specialty pharmaceutical products. With over $180 billion in annual U.S. drug distribution revenue, McKesson supplies nearly one third of the overall market, comparable to AmerisourceBergen and slightly outpacing Cardinal Health in market share. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market. The highly consolidated pharmaceutical wholesale market reflects the substantial scale-based cost advantages held by the largest players.

Narrow-moat McKesson posted strong fiscal first-quarter results driven by organic growth in the United States, in contrast with performance in the international segment that reflects management’s goal to wind down the European distribution business to reallocate capital toward specific higher-margin U.S. operations. As the company nears divestment from Europe, it was coincidentally less exposed to the negative translation effects of the strong dollar on this quarter relative to peers. Looking to the year ahead, McKesson’s vaccine and test kit distribution contracts with the U.S. government were recently extended through early to mid-2023. Because of this extension, management raised its earnings per share guidance for fiscal 2023 to $23.95-$24.65 from $22.90-$23.60, and we plan to slightly raise our fair value estimate as a result.

McKesson is a leading domestic wholesaler of branded, generic, and specialty pharmaceutical products. With over $180 billion in annual U.S. drug distribution revenue, McKesson supplies nearly one third of the overall market, comparable to AmerisourceBergen and slightly outpacing Cardinal Health in market share. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market. The highly consolidated pharmaceutical wholesale market reflects the substantial scale-based cost advantages held by the largest players.