The Federal Reserve announced the third consecutive 75-basis-point interest rate hike last month and signaled more hikes this year to battle soaring prices. The economy seems to be on the brink of a recession amid such aggressive hikes.
JPMorgan CEO Jamie Dimon warned that the U.S. would likely fall into a recession in 2023, and it may not be just a mild contraction that some investors are expecting. “It can go from very mild to quite hard, and a lot will be reliant on what happens with this war. So, I think to guess is hard, be prepared,” he said.
On the bright side, the economy added 2,63,000 jobs in September, close to the Dow Jones estimate, and the unemployment rate came down to 3.5% from 3.7% in the previous month. This signals a resilient labor market despite the macroeconomic issues. However, a strong job market might motivate the Fed to maintain its hawkish stance.
While the stock market is expected to remain under pressure due to the uncertain macroeconomic backdrop, Wall Street analysts expect McKesson Corporation (MCK), AmerisourceBergen Corporation (ABC), and TravelCenters of America Inc. (TA) to witness reasonable upsides based on their fundamental strength. So, these stocks could be wise to add to your portfolio.
McKesson Corporation (MCK)
MCK is a diversified healthcare service provider focusing on advancing patients’ health outcomes globally. The company operates through four segments U.S. Pharmaceutical; Prescription Technology Solutions; Medical-Surgical Solutions; and International.
On September 29, MCK announced its agreement to extend its long-standing partnership with CVS Health Corporation (CVS) to distribute pharmaceuticals to mail-order and specialty pharmacies, retail pharmacies, and distribution centers through June 2027. This should continue to be beneficial for the company.
In the same month, MCK signed a definitive agreement to acquire Rx Savings Solutions for $875 million. RxSS is a prescription price transparency and benefits insight company offering affordable and adherence solutions to health plans and employers.
“Rx Savings Solutions’ offerings for employers and patients will strengthen McKesson’s ability to help solve the most common medication challenges related to access, affordability and adherence,” said Brian Tyler, CEO of MCK.
In the fiscal first quarter ended June 30, 2022, MCK’s total revenues increased 7.2% year-over-year to $67.15 billion. Income from continuing operations attributable to MCK during the quarter increased 56.6% year-over-year to $766 million, while net income attributable to MCK increased 58% from the year-ago value to $768 million. Additionally, the company reported an adjusted EPS of $5.83 for the quarter, registering an increase of 4.9% year-over-year.
Analysts expect MCK to report revenue and EPS of $277.29 billion and $24.41 for the fiscal year ending March 2023, registering an increase of 5.1% and 3% year-over-year, respectively.
The stock has gained 73.5% over the past year and 39.7% year-to-date. The 12-month median price target of $395.67 indicates a 13.9% potential upside.
MCK’s POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall rating of A, translating to a Strong Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also 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 the 80 stocks. Click here to access MCK’s ratings for Momentum and Quality.
AmerisourceBergen Corporation (ABC)
ABC is a global pharmaceutical sourcing and distribution services company that operates through two segments Pharmaceutical Distribution; and Other. It conducts its operations in the United States and internationally.
On September 12, ABC announced its agreement to acquire PharmaLex Holding GmbH, a leading provider of specialized services for the life sciences industry. This should expand the company’s global platform of biopharma services and advance its role as a partner of choice for biopharmaceutical manufacturers.
ABC’s revenue increased 12.5% year-over-year to $60.06 billion for the third quarter that ended June 30, 2022. Its adjusted operating income rose 19.9% year-over-year to $756.19 million. Its non-GAAP net income increased 22.8% year-over-year to $554.77 million. In addition, its adjusted EPS came in at $2.62, representing an increase of 21.3% year-over-year.
The consensus EPS estimate of $2.58 for the quarter ended September 2022 indicates an increase of 7.8% year-over-year. The consensus revenue estimate of $60.62 billion represents a 2.9% year-over-year increase in the same period. ABC also surpassed Street EPS estimates in each of the trailing four quarters.
The stock gained marginally intraday to close the last trading session at $137.62. Its 12-month median price target of $171.29 indicates a 24.5% potential upside.
ABC’s POWR Ratings reflect its impressive growth prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and a B for Growth and Stability. It is ranked #2 out of 80 stocks in the Medical – Services industry.
Beyond what is stated above, we have also rated ABC for Momentum, Sentiment, and Quality. Click here to access the POWR Ratings for ABC.
TravelCenters of America Inc. (TA)
TA operates travel centers, truck service facilities, and restaurants in the United States and Canada. Its full and quick service restaurants operate under the brands Iron Skillet, Country Pride, IHOP, Black Bear Diner, Fuddruckers, Bob Evans, Popeye’s Chicken & Biscuits, Subway, Burger King, Taco Bell, Pizza Hut, Dunkin’, and Starbucks Coffee.
For the second quarter ended June 30, TA’s total revenues increased 67.9% year-over-year to $3.08 billion. Its income from operations grew 89.3% year-over-year to $94.23 million. The company’s adjusted net income and adjusted net income per share rose 117% and 108.7% year-over-year to $64.40 million and $4.34, respectively.
Street expects TA’s revenue for the quarter ended September 2022 to come in at $2.73 billion, reflecting a 40.6% year-over-year increase. The company’s EPS is expected to increase 75.9% from the prior-year quarter to $2.67.
TA has gained 379.9% over the past three years and 50.9% over the past three months. Its 12-month median price target of $75 indicates a 39.3% potential upside.
It is no surprise that TA has an overall A rating which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Growth and Value and a B for Sentiment and Quality. In the 46-stock Specialty Retailers industry, TA is ranked first.
To get TA’s grade for Momentum and Stability, click here.
MCK shares were trading at $348.73 per share on Tuesday morning, up $1.41 (+0.41%). Year-to-date, MCK has gained 40.94%, versus a -23.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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