McKesson is Wednesday's IBD Stock Of The Day. Drug distributors are "so hot right now," according to one analyst, and MCK stock is consolidating following a strong quarterly report.
There's a newfound momentum behind drug distributors, JPMorgan Chase analyst Lisa Gill said in a recent note to clients. McKesson, AmerisourceBergen and Cardinal Health control the lion's share of the market for wholesaling medicines across the globe. And they're enjoying hard-fought momentum, Gill said.
She acknowledged drug prices, the regulatory landscape and a potential settlement in the opioid crisis — the three drug distributors are defendants in numerous lawsuits — remain wild cards. But several underlying factors in the pharmaceutical distribution business have stabilized, she said.
"The company's differentiated strategy around oncology and biopharma services, strong growth in specialty and the potential impact from biosimilars, Covid-19 vaccine distribution, cost savings opportunities and accretive uses of cash flow" could continue to prop up MCK stock, she said.
Gill has an outperform rating and 442 price target on MCK stock.
MCK Stock: Strong Earnings Growth
Earlier this month, McKesson beat fiscal fourth-quarter expectations. Sales inched 4% higher to $68.9 billion, easily topping Wall Street projections for $68.1 billion. Adjusted earnings came in at $7.19 per share, surging 23%. That was a penny better than forecasts, according to FactSet.
The strong earnings growth is reflected in MCK stock's IBD Digital EPS Rating of 95. This puts shares in the top 5% of all stocks in terms of recent profitability.
Sales within the biggest division, U.S. pharmaceutical sales, climbed 15% to $61.7 billion. That helped offset a 6% decline for the medical-surgical business. Distributing medical-surgical supplies brought in $2.7 billion in sales. Pharma sales beat forecasts from MCK stock analysts, while medical-surgical missed.
McKesson also raised its guidance for fiscal year 2024 and now expects to earn $26.10-$26.90 a share, minus some items. Earnings would grow 1%-4% year over year.
MCK stock was up 0.8% to 396.43 in afternoon trading on the stock market today.
Raised Long-Term Outlook For McKesson
During the recent Bank of America Securities 2023 Healthcare Conference, McKesson also boosted its long-term earnings before interest and taxes forecast for the pharma division to 5%-7%. Previously, the company expected just 4% growth.
That helped buck "unfounded worries," Bank of America analyst Michael Cherny said in a note. He says drug distributors are "so hot right now." AmerisourceBergen also recently raised its U.S. guidance on the back of solid utilization and pricing improvements.
"Within our universe, core pharma utilization should be as recession-proof as anything, setting up the distributor group for further upside," he said.
He has a buy rating and 470 price target on MCK stock. McKesson shares are currently consolidating with a buy point at 401.88, MarketSmith.com shows. But by Thursday, MCK stock could tack on a handle, forging a lower entry at 401.63.
And it's not the only drug distributor forming a chart pattern. AmerisourceBergen stock topped a buy point at 174.73 out of a cup base. Shares have since fallen below their entry, but not enough to trigger a sell rule. Cardinal Health shares are now in a buy zone above an entry at 81.67.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
