Despite the major macroeconomic headwinds in the stock market, shares of healthcare services provider McKesson Corporation (MCK) have gained 52.1% over the past year to close the last trading session at $375.03. Also, Wall Street analysts expect the stock to hit $426.25 in the near term, indicating a potential upside of 13.7%.
While the company missed the consensus EPS estimate by 0.7% in the last quarter, its revenue beat analysts’ estimates. The company has raised its outlook for fiscal 2023 and expects its EPS to come between $24.45 and $24.95 versus the $23.95 to $24.65 expected earlier.
Moreover, MCK’s revenue grew at a CAGR of 7% over the past three years, while the company’s normalized net income grew at a CAGR of 44.1% over the past three years.
For the first six months of the fiscal year, MCK returned $1.6 billion of cash to shareholders, which included $1.5 billion of common stock repurchases and $139 million of dividend payments.
Here’s what could influence MCK’s performance in the upcoming months:
MCK’s revenues increased 5.4% year-over-year to $70.16 billion for the second quarter that ended September 30, 2022. The company’s operating income increased 108.5% year-over-year to $1.12 billion.
During the same quarter, its net income increased 211.9% year-over-year to $967 million, while EPS increased 275.4% year-over-year to $6.42.
Consistent Dividend Payouts
MCK’s annual dividend of $2.16 yields 0.58% on the current share price. It has a four-year average yield of 0.91%.
Its dividend payouts have increased at an 8.1% CAGR over the past three years and a 10.3% CAGR over the past five years. The company has increased its dividend payouts for 15 consecutive years.
In terms of forward non-GAAP PEG, MCK’s multiple of 1.23x is 40.8% lower than the 2.08x industry average. Its forward P/S of 0.19x is 95.9% lower than the 4.74x industry average. Also, the stock’s forward EV/Sales of 0.21x is 94.9% lower than the 4.15x industry average.
POWR Ratings Show Promise
MCK has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MCK has an A grade for Growth, reflecting its robust financials in the last reported quarter.
It has a B grade for Value, consistent with its discounted valuation. Also, its B grade in Stability is in sync with its relatively low beta of 0.63.
Healthcare companies face an inelastic demand for their products and services, which provides a way for investors to hedge against macroeconomic uncertainties. This helped MCK to deliver significant returns over the past year. Moreover, the company pays a steady dividend.
So, given its robust financials, consistent dividend payouts, and discounted valuation, the stock might be an ideal buy for 2023.
How Does McKesson Corporation (MCK) Stack up Against Its Peers?
MCK has an overall POWR Rating of A, equating to a Strong Buy rating. One can check out these other stocks within the same industry with an A (Strong Buy) rating: HealthStream, Inc. (HSTM), AmerisourceBergen Corporation (ABC), and Quipt Home Medical Corp. (QIPT)
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MCK shares were unchanged in premarket trading Tuesday. Year-to-date, MCK has declined -0.02%, versus a 4.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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