Healthcare service provider McKesson Corporation (MCK - Get Rating) has returned $1.60 billion of cash to shareholders in the first six months of the fiscal year. This included $1.50 billion of common stock repurchases and $139 million in dividend payments.

Moreover, on October 27, MCK declared a regular dividend of 54 cents per share of common stock, payable on January 3, 2023. Its annual dividend of $2.16 yields 0.55% on the current share price. It has a four-year average yield of 0.95%.

Its dividend payouts have increased at a 7.3% CAGR over the past three years and a 10.6% CAGR over the past five years. The company has grown its dividend payments for 14 consecutive years.

The stock has gained 78% over the past year and 56.8% year-to-date. It is up 14.7% over the past month to close its last trading session at $389.79. MCK is trading higher than its 50-day moving average of $359.21 and 200-day moving average of $322.78.

We think the following factors might influence MCK’s performance in the near term:

Sound Financials

For the fiscal second quarter ended September 30, MCK’s revenues increased 5.4% year-over-year to $70.16 billion. Net income attributable to MCK rose 246.8% from the prior-year quarter to $926 million. Earnings per common share attributable to MCK improved 275.4% from the same period the prior year to $6.42.

Its adjusted earnings and adjusted EPS came in at $874 million and $6.06, respectively. As of September 30, the company’s cash and cash equivalents were $2.92 billion, up 35.6% from the prior-year period.

Attractive Valuation

In terms of its forward P/E, MCK is trading at 17.68x, 30.2% lower than the industry average of 25.33x. The stock’s forward EV/Sales multiple of 0.22 is 94.3% lower than the industry average of 3.91. In terms of its forward Price/Sales, it is trading at 0.20x, 95.5% lower than the industry average of 4.39x.

Favorable Analyst Expectations

The consensus EPS estimates of $6.35 and $6.52 for the quarters ending December 2022 and March 2023 indicate 3.3% and 11.8% year-over-year increases. Likewise, the consensus EPS estimate for the fiscal year 2023 of $24.72 reflects a rise of 4.3% from the prior year.

In addition, MCK’s EPS is expected to grow 9.9% per annum over the next five years. Moreover, Street revenue estimate of $276.59 billion for fiscal 2023 indicates a 4.4% year-over-year increase.

POWR Ratings Reflect Promising Prospects

MCK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating 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 a Growth grade of A, in sync with its revenue and EPS growth at 7% and 44.3% CAGRs over the past three years, respectively.

MCK also has a B grade for Value and Sentiment, consistent with its lower-than-industry valuation multiples and favorable analyst sentiments.

In the 77-stock Medical – Services industry, it is ranked #1.

Click here to see the additional POWR Ratings for MCK (Momentum, Stability, and Quality).

View all the top stocks in the Medical – Services industry here.

Bottom Line

MCK has returned hefty amounts to its shareholders in the first half of the fiscal year. Additionally, the stock is trading above its 50-day and 200-day moving averages, indicating an uptrend. Moreover, the company’s fundamentals and earnings stream should help it continue rewarding shareholders.

Hence, MCK could be an excellent investment for generating passive income amid the current market turbulence.

How Does McKesson Corporation (MCK) Stack Up Against Its Peers?

While MCK has an overall POWR Rating of A, one might want to consider looking at its industry peers, HealthStream, Inc. (HSTM - Get Rating) and NextGen Healthcare, Inc. (NXGN - Get Rating), which also have an overall A (Strong Buy) rating.

MCK shares were unchanged in premarket trading Thursday. Year-to-date, MCK has gained 57.54%, versus a -20.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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