McKesson is the IBD Stock Of The Day. The same drug wholesaler rally sending McKesson stock near a breakout is also bolstering AmerisourceBergen and Cardinal Health.
All three are middlemen, distributing medicines for drugmakers to pharmacies, hospitals and doctor's offices. There are seven companies in Investor's Business Daily's drug wholesale and supply industry group. But these three are estimated to dominate 90%-95% of the market.
And, on Friday, the industry group surged a collective 2.7%, retaking the sector's 50-day line. McKesson stock led the charge, jumping 3.1% to close at 331.26 on today's stock market.
Biggest Drug Distributor: McKesson Stock
McKesson is the biggest member of its industry group with a market cap around $48 billion. Last year, the company generated $263.97 billion in sales. Sales have steadily ticked up for years, growing about 11% last year. This year, analysts expect sales to creep 1% higher to $266.86 billion.
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The company provides kit materials for Covid vaccines, a key process in bringing together the components to actually administer the shots. In the fiscal fourth quarter, revenue from vaccine kit materials came in below expectations and distribution of vaccines was at the low end of projections.
Then, McKesson noted government distribution contracts expire in July, and there's no guarantee the U.S. government will resign those contracts.
"Management assured they would likely participate in commercial distribution but did not include any assumptions around this participation in guidance," Credit Suisse analyst A.J. Rice said in a report to clients. He kept his outperform rating on McKesson stock, however.
New Covid Wave Could Spur Demand
But the new Covid wave could spur fresh demand for booster shots, and new contracts for both vaccine makers and drug wholesalers, like McKesson. In fact, the Food and Drug Administration just asked the vaccine makers to update their boosters for the B.A.4 and B.A.5 sub-variants of omicron.
Representatives of McKesson didn't immediately return a request for comment from Investor's Business Daily on how this could impact the company's business.
McKesson is estimated to own more than 28% of the drug distribution market in the U.S., according to a June report from researcher CSI Market. AmerisourceBergen and Cardinal Health trail closely at 24.6% and 18.9%, respectively.
For the fiscal first quarter, McKesson stock analysts expect the company to report adjusted earnings of $5.27 per share on $64.9 billion in sales. Earnings would sink slightly year over year, but sales would rise about 3.5%. Future metrics could jump higher if McKesson participates in the next booster round.
Beyond Covid, McKesson says distribution of specialty products to pharmacies helped its fiscal fourth-quarter growth.
Highly Rated Medical Stock
Bullishly, McKesson stock has a nearly perfect Relative Strength Rating of 98. This puts the company's 12-month stock performance in the leading 2% of all stocks, according to IBD Digital. Shares also have a strong Composite Rating of 97 out of a total 99. So, McKesson ranks in the leading 3% of all stocks in terms of fundamental and technical measures.
On Friday, shares bounded off their 50-day moving average, MarketSmith.com shows. McKesson stock is forming a flat base with a buy point at 340.04.
Alternatively, McKesson was added to IBD's SwingTrader on Friday and could be considered in a buy zone above an entry at 330.16 out of a short consolidation.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
