The Federal Reserve’s hawkish stance to tame the soaring inflation and geopolitical tensions have kept the stock market under immense pressure since the beginning of the year.
While the market has witnessed a recovery since July due to better-than-expected corporate earnings and a slight decline in inflation, a robust job market could encourage the Fed to continue maintaining its hawkish stance to bring inflation down to its target level.
The possibility of the Fed considering a higher rate hike in its next meeting may not bode well for the market. The market’s continued correction has led to many quality stocks trading at reasonable valuations. So, it could be wise to invest in stocks trading at discounts to their peers and possessing solid growth prospects.
McKesson Corporation (MCK)
MCK is a diversified healthcare service provider focusing on advancing health outcomes for patients globally. It operates its business through four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International.
On June 23, 2022, MCK partnered with HCA Healthcare, Inc. (HCA) to form an oncology research joint venture to advance cancer care and increase access to oncology clinical research.
Brian Tyler, chief executive officer of MCK, said, “the joint venture directly aligns with McKesson’s strategic growth priorities by further expanding our differentiated oncology ecosystem and improving the value proposition for provider and biopharma partners.”
In the fiscal first quarter ended June 30, 2022, MCK’s total revenues increased 7% year-over-year to $67.15 billion. The company’s income from continuing operations increased 57% year-over-year to $766 million, while its net income increased 58% from the year-ago value to $768 million. Also, its adjusted EPS came in at $5.83, representing an increase of 5% year-over-year.
In terms of forward non-GAAP P/E, MCK is currently trading at 14.98x, 23.2% lower than the industry average of 19.50x. Its forward EV/Sales of 0.21x is 95% lower than the industry average of 4.26x. In addition, the stock’s forward EV/EBIT and EV/EBITDA ratios of 12.26x and 11.10x compare with industry averages of 17.12x and 13.96x, respectively.
For the quarter ending September 30, 2022, MCK’s revenue is expected to increase 5.3% year-over-year to $70.10 billion. Its EPS is expected to increase marginally year-over-year to $6.16 in the next quarter ending December 31, 2022.
Over the past year, the stock has gained 81.2% to close the last trading session at $363.22.
MCK’s POWR Ratings reflect these solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Value, Stability, and Sentiment. Within the Medical – Services industry, it is ranked first out of 83 stocks. To see the ratings of MCK for Momentum and Quality, click here.
ADT Inc. (ADT)
ADT provides security, interactive, and smart home solutions serving residential, small business, and commercial customers in the United States. Its segments include Consumer and Small Business (CSB), Commercial, and ADT Solar business (Solar).
On July 13, 2022, the company introduced a new ADT Virtual Assistance program for residential customers in order to provide greater flexibility for appointment scheduling and faster resolutions for many service tasks. Given the benefits of flexibility, cost savings, and enhanced customer experience, it will likely witness strong demand.
ADT’s total revenue increased 22.8% year-over-year to $1.60 billion for the second quarter ended June 30, 2022. The company’s adjusted EBITDA grew 10.1% from the year-ago value to $597 million, while its adjusted net income improved 190.9% year-over-year to $50 million. Also, its adjusted EPS came in at $0.06 compared to a net loss per share of $0.07 in the year-ago period.
In terms of forward non-GAAP EV/EBITDA, ADT is currently trading at 7.05x, 21.8% lower than the industry average of 9.02x. Its forward P/B of 2.01x is 25% lower than the industry average of 2.67x.
Analysts expect ADT’s EPS and revenue for the third quarter (ending September 30, 2022) to increase 242.9% and 21.1% year-over-year to $0.10 and $1.6 billion, respectively. Over the past three months, the stock has gained 10.5% to close the last trading session at $7.66.
ADT’s POWR Ratings reflect solid prospects. It has an overall rating of B, translating to a Buy. The stock also has an A grade for Growth and a B for Stability.
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MCK shares were trading at $364.66 per share on Thursday afternoon, up $1.44 (+0.40%). Year-to-date, MCK has gained 47.16%, versus a -11.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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