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The company delivered an earnings surprise of 10.06% in the last reported quarter. Its earnings beat estimates in three of the trailing four quarters and missed once, delivering an average surprise of 4.82%.
MCK’s top line has been gaining primarily on the back of the rapid adoption of GLP-1 weight loss drugs as well as continued demand for branded pharmaceuticals. These drugs have been boosting its sales for the past few quarters. Rising demand for specialty pharmaceuticals is another key factor behind revenue growth.
Meanwhile, a recovery in primary care visits aided top-line growth during the last two reported quarters. Moreover, the company’s expansion of its distribution centers and adoption of artificial intelligence (AI) in its services and products have been boosting its revenues recently. However, MCK’s earnings continue to reflect the higher cost of sales due to increased sales of lower-margin products.
The Zacks Consensus Estimate for earnings is pegged at $6.89 per share, implying a significant improvement of 10.6% year over year. The consensus mark for revenues is pegged at $89.48 billion, indicating a surge of 15.9% year over year.
Factors Likely to Have Driven Q2 Segmental Performance
U.S. Pharmaceutical
McKesson derives the majority of its revenues from the U.S. Pharmaceutical segment, which distributes drugs and other healthcare-related products in the United States. Prescription volume, a key operating metric for this segment, is likely to have shown stable growth, as in the last reported quarter. Continued robust demand for specialty pharmaceuticals, including cancer therapies, should have been a key driver for prescription volume during the second quarter.
The strong demand of GLP-1 medication in the U.S. market should have aided MCK’s top-line growth on the back of higher volume of these medications shipped.
The company’s new distribution centers and expansion in Canada are likely to have acted as tailwinds during the quarter. However, the divestiture of its European business is anticipated to have led to a loss of sales. In September, MCK divested its Canada-based Rexall and Well.ca businesses, in line with McKesson’s broader strategy to streamline operations and prioritize investments in high-growth areas such as oncology and biopharma services. These divestments should have led to further loss of sales during the fiscal second quarter.
However, branded-to-generic conversions might have weighed on its performance. The lower margin for GLP-1 medications must have continued to hurt the gross margin during the second quarter.
Our estimate for this segment’s revenues is pegged at $80.8 billion, indicating an improvement of 15.8% from the prior-year level.
Prescription Technology Solutions
This segment connects patients, pharmacies, providers, pharmacy benefit managers, health plans and biopharma companies, and solves medication access, affordability and adherence challenges for patients.
Revenues in this segment are likely to have shown strong demand for technology services. Meanwhile, the trend of increased demand for access solutions, led by newly launched products, is also expected to have continued during the second quarter. However, lower contributions from third-party logistics businesses are likely to have hurt segmental income.
Our top-line estimate for the Prescription Technology Solutions segment is pegged at $1.28 billion, implying an 11.9% improvement year over year.
Medical Surgical Solutions
The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics and other services to healthcare providers. The segment reflected a sequential recovery in primary care visits during the last couple of quarters. The trend is likely to have continued in the second quarter, driving the specialty pharmaceuticals volume higher.
Although recovery in care visits looks promising, the patient volume might have acted as a headwind. The segmental result may also reflect unfavorable customer mix and product demand shifts in the primary care channel.
Our top-line estimate for the Medical Surgical Solutions segment is pegged at $2.99 billion.
A weaker illness season this fiscal year (compared with the previous year) is likely to have acted as a headwind for operating profit growth during the second quarter. Meanwhile, interest expenses followed multiple rate hikes over the past couple of years, which must have hurt the bottom line.
What Our Quantitative Model Suggests
Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: McKesson has an Earnings ESP of -0.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3.
Long-Term Growth Potential
McKesson is a leading drug distributor in the United States, known for its extensive distribution network and services that support both healthcare providers and patients. Its focus on innovation has been a significant driver of its performance over the past several years. The company is committed to enhancing efficiency through investments in automation and technology, which are expected to be key growth drivers in the future.
Earlier this year, McKesson expanded its distribution network by adding two new centers equipped with advanced technology in the United States. This expansion is expected to improve the efficiency of drug distribution, particularly for specialty pharmaceuticals. In August, MCK inked a definitive agreement to acquire a controlling interest (representing approximately 70% ownership) in Community Oncology Revitalization Enterprise Ventures. The management believes that the agreement is a significant step toward advancing community-based oncology care.
The company has also developed a unique set of assets to serve the growing Oncology and Biopharma markets. Additionally, its multi-year plan to modernize distribution centers across Canada looks promising for revenue growth.
McKesson's network includes more than 50,000 pharmacies and approximately 900,000 providers, making it one of the most important drug distributors with access to a large patient population. This scale positions the company to attract more pharmaceutical manufacturers, thereby driving revenue growth.
In addition, McKesson is adopting cutting-edge technology, particularly AI, to support its customers. The AI-driven tools are being integrated to assist healthcare providers with revenue cycle management and the evaluation of clinical solutions. These AI services should also help providers navigate complex insurance coverage and reimbursement processes more efficiently. The company also plans to use AI for automatic clinical note generation and various supply-chain applications.
Our Take
MCK’s shares have risen 13.7% year to date compared with the industry’s growth of 0.2%. The outperformance can be attributed to top and bottom-line improvements on the back of promising initiatives taken by the company.
Image Source: Zacks Investment Research
The company’s plans should help it continue on its uptrend going forward. Per the Zacks Style Score, a Zacks proprietary method to evaluate stocks, the company looks undervalued (Value Score: A) with a moderate chance of continued uptrend (Growth Score: C). However, the pace remains uncertain (Momentum Score: C).
As the Zacks Rank, coupled with the style score for MCK, does not conclusively predict that the company may beat on earnings this reporting cycle, we caution against any new investment bet in MCK at present. However, those who have already invested in the stock may continue to hold it in their portfolio.
Stocks to Consider
Here are a few medical stocks worth considering, as these have the right combination of elements to come up with an earnings beat this reporting cycle.
The company is likely to release third-quarter 2024 results on Nov. 5. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 14.63%. The Zacks Consensus Estimate for EPS implies an improvement of 33.3% from the year-ago figure.
ACADIA Pharmaceuticals (ACAD - Free Report) has an Earnings ESP of +38.39% and a Zacks Rank #3 at present. The company is expected to release third-quarter 2024 results on Nov. 6.
ACAD’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 42.37%. The Zacks Consensus Estimate for EPS implies a surge of 127.5% from the year-ago recorded figure.
Becton, Dickinson and Company (BDX - Free Report) has an Earnings ESP of +0.32% and a Zacks Rank #2 at present. The company is expected to release fourth-quarter fiscal 2024 results on Nov. 7.
BDX’s earnings beat estimates in three of the trailing four quarters and met once, the average surprise being 6.24%. The EPS is expected to improve 10.2% from the year-earlier reported loss.
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Should You Buy, Sell or Hold McKesson Before Q2 Earnings?
McKesson Corporation (MCK - Free Report) is scheduled to report second-quarter fiscal 2025 results on Nov. 6, after market close.
The company delivered an earnings surprise of 10.06% in the last reported quarter. Its earnings beat estimates in three of the trailing four quarters and missed once, delivering an average surprise of 4.82%.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
MCK’s top line has been gaining primarily on the back of the rapid adoption of GLP-1 weight loss drugs as well as continued demand for branded pharmaceuticals. These drugs have been boosting its sales for the past few quarters. Rising demand for specialty pharmaceuticals is another key factor behind revenue growth.
Meanwhile, a recovery in primary care visits aided top-line growth during the last two reported quarters. Moreover, the company’s expansion of its distribution centers and adoption of artificial intelligence (AI) in its services and products have been boosting its revenues recently. However, MCK’s earnings continue to reflect the higher cost of sales due to increased sales of lower-margin products.
McKesson Corporation Price and EPS Surprise
McKesson Corporation price-eps-surprise | McKesson Corporation Quote
Q2 Estimates
The Zacks Consensus Estimate for earnings is pegged at $6.89 per share, implying a significant improvement of 10.6% year over year. The consensus mark for revenues is pegged at $89.48 billion, indicating a surge of 15.9% year over year.
Factors Likely to Have Driven Q2 Segmental Performance
U.S. Pharmaceutical
McKesson derives the majority of its revenues from the U.S. Pharmaceutical segment, which distributes drugs and other healthcare-related products in the United States. Prescription volume, a key operating metric for this segment, is likely to have shown stable growth, as in the last reported quarter. Continued robust demand for specialty pharmaceuticals, including cancer therapies, should have been a key driver for prescription volume during the second quarter.
The strong demand of GLP-1 medication in the U.S. market should have aided MCK’s top-line growth on the back of higher volume of these medications shipped.
The company’s new distribution centers and expansion in Canada are likely to have acted as tailwinds during the quarter. However, the divestiture of its European business is anticipated to have led to a loss of sales. In September, MCK divested its Canada-based Rexall and Well.ca businesses, in line with McKesson’s broader strategy to streamline operations and prioritize investments in high-growth areas such as oncology and biopharma services. These divestments should have led to further loss of sales during the fiscal second quarter.
However, branded-to-generic conversions might have weighed on its performance. The lower margin for GLP-1 medications must have continued to hurt the gross margin during the second quarter.
Our estimate for this segment’s revenues is pegged at $80.8 billion, indicating an improvement of 15.8% from the prior-year level.
Prescription Technology Solutions
This segment connects patients, pharmacies, providers, pharmacy benefit managers, health plans and biopharma companies, and solves medication access, affordability and adherence challenges for patients.
Revenues in this segment are likely to have shown strong demand for technology services. Meanwhile, the trend of increased demand for access solutions, led by newly launched products, is also expected to have continued during the second quarter. However, lower contributions from third-party logistics businesses are likely to have hurt segmental income.
Our top-line estimate for the Prescription Technology Solutions segment is pegged at $1.28 billion, implying an 11.9% improvement year over year.
Medical Surgical Solutions
The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics and other services to healthcare providers. The segment reflected a sequential recovery in primary care visits during the last couple of quarters. The trend is likely to have continued in the second quarter, driving the specialty pharmaceuticals volume higher.
Although recovery in care visits looks promising, the patient volume might have acted as a headwind. The segmental result may also reflect unfavorable customer mix and product demand shifts in the primary care channel.
Our top-line estimate for the Medical Surgical Solutions segment is pegged at $2.99 billion.
A weaker illness season this fiscal year (compared with the previous year) is likely to have acted as a headwind for operating profit growth during the second quarter. Meanwhile, interest expenses followed multiple rate hikes over the past couple of years, which must have hurt the bottom line.
What Our Quantitative Model Suggests
Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: McKesson has an Earnings ESP of -0.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3.
Long-Term Growth Potential
McKesson is a leading drug distributor in the United States, known for its extensive distribution network and services that support both healthcare providers and patients. Its focus on innovation has been a significant driver of its performance over the past several years. The company is committed to enhancing efficiency through investments in automation and technology, which are expected to be key growth drivers in the future.
Earlier this year, McKesson expanded its distribution network by adding two new centers equipped with advanced technology in the United States. This expansion is expected to improve the efficiency of drug distribution, particularly for specialty pharmaceuticals. In August, MCK inked a definitive agreement to acquire a controlling interest (representing approximately 70% ownership) in Community Oncology Revitalization Enterprise Ventures. The management believes that the agreement is a significant step toward advancing community-based oncology care.
The company has also developed a unique set of assets to serve the growing Oncology and Biopharma markets. Additionally, its multi-year plan to modernize distribution centers across Canada looks promising for revenue growth.
McKesson's network includes more than 50,000 pharmacies and approximately 900,000 providers, making it one of the most important drug distributors with access to a large patient population. This scale positions the company to attract more pharmaceutical manufacturers, thereby driving revenue growth.
In addition, McKesson is adopting cutting-edge technology, particularly AI, to support its customers. The AI-driven tools are being integrated to assist healthcare providers with revenue cycle management and the evaluation of clinical solutions. These AI services should also help providers navigate complex insurance coverage and reimbursement processes more efficiently. The company also plans to use AI for automatic clinical note generation and various supply-chain applications.
Our Take
MCK’s shares have risen 13.7% year to date compared with the industry’s growth of 0.2%. The outperformance can be attributed to top and bottom-line improvements on the back of promising initiatives taken by the company.
Image Source: Zacks Investment Research
The company’s plans should help it continue on its uptrend going forward. Per the Zacks Style Score, a Zacks proprietary method to evaluate stocks, the company looks undervalued (Value Score: A) with a moderate chance of continued uptrend (Growth Score: C). However, the pace remains uncertain (Momentum Score: C).
As the Zacks Rank, coupled with the style score for MCK, does not conclusively predict that the company may beat on earnings this reporting cycle, we caution against any new investment bet in MCK at present. However, those who have already invested in the stock may continue to hold it in their portfolio.
Stocks to Consider
Here are a few medical stocks worth considering, as these have the right combination of elements to come up with an earnings beat this reporting cycle.
Masimo (MASI - Free Report) has an Earnings ESP of +0.40% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is likely to release third-quarter 2024 results on Nov. 5. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 14.63%. The Zacks Consensus Estimate for EPS implies an improvement of 33.3% from the year-ago figure.
ACADIA Pharmaceuticals (ACAD - Free Report) has an Earnings ESP of +38.39% and a Zacks Rank #3 at present. The company is expected to release third-quarter 2024 results on Nov. 6.
ACAD’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 42.37%. The Zacks Consensus Estimate for EPS implies a surge of 127.5% from the year-ago recorded figure.
Becton, Dickinson and Company (BDX - Free Report) has an Earnings ESP of +0.32% and a Zacks Rank #2 at present. The company is expected to release fourth-quarter fiscal 2024 results on Nov. 7.
BDX’s earnings beat estimates in three of the trailing four quarters and met once, the average surprise being 6.24%. The EPS is expected to improve 10.2% from the year-earlier reported loss.