McKesson Raises Full-Year Earnings Guidance, Shares Up 5%

McKesson shares rose 5.2% on Tuesday after the company reported better-than-expected results for the second quarter of fiscal 2021 (ended Sept. 30) and raised its full-year guidance.

McKesson’s (MCK) 2Q revenue grew 6% to $60.8 billion driven by strength in its US Pharmaceutical segment. The healthcare company’s adjusted EPS surged 33% Y/Y to $4.80 driven by a lower share count, a lower tax rate, growth in the Medical-Surgical Solutions segment and a gain of $0.22 associated with McKesson Ventures’ equity investments. McKesson exceeded analysts’ expectations of EPS of $3.87 and revenue of $59.4 billion.

The company attributed the 5% rise in its US Pharmaceutical segment’s revenue to $48.1 billion to market growth and higher volumes from retail national account customers, partially offset by branded to generic conversions.

Meanwhile, the International segment’s sales rose 2% to $9.5 billion while sales from the Medical-Surgical Solutions segment rose 23% to $2.5 billion driven by demand for COVID-19 tests and personal protective equipment. Sales of the Prescription Technology Solutions segment grew 7% to $668 million on new brand support programs, partially offset by lower prescription volume trends.

Looking ahead, the company now expects FY21 adjusted EPS in the range of $16.00 to $16.50 compared to the previous outlook of $14.70 to $15.50. (See MCK stock analysis on TipRanks)

Ahead of the results, Barclays analyst Steve Valiquette upgraded McKesson to Buy from Hold but kept the price target unchanged at $166. The analyst is more constructive on the US drug distribution industry after taking a “fairly neutral” stance on the subsector over the last several years.

The analyst noted that generic drug pricing has been a major headwind for the sector over the last few years, but the latest industry data shows generic drug price deflation has stabilized throughout 2020. He also added that the sector is now relatively close to reaching a global opioid litigation settlement with the majority of US states.

The rest of the Street is cautiously optimistic about McKesson. Four Buys and 2 Holds add up to a Moderate Buy analyst consensus. The average analyst price target of $188.80 indicates an upside potential of about 18% in the coming months. Shares have risen 15.7% so far in 2020.

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