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McKesson (MCK) Reaches 52-Week High: What's Aiding the Stock?

Shares of McKesson Corporation MCK scaled a new 52-week high of $605.33 on Jun 20, 2024, before closing the session slightly lower at $603.24.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 44.2% compared with 0.9% growth of the industry and the 24.8% rise of the S&P 500 Composite.

Over the past five years, the company registered earnings growth of 14.7% compared with the industry’s 12.9% rise. The company’s long-term expected growth rate of 13.6% compares with the industry’s growth projection of 11.2%. McKesson’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once, the average surprise being 8.4%.

McKesson is witnessing an upward trend in its stock price, prompted by its robust Biologics business. The optimism led by a solid fourth-quarter fiscal 2024 performance and improving demand for healthcare are expected to contribute further. However, stiff competition and weaker generic pharmaceutical pricing trends persist.

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Let’s delve deeper.

Key Growth Drivers

Strength in Biologics: Investors are optimistic about McKesson’s robust Biologics business. Independent specialty pharmacy, Biologics by McKesson, has been making impressive progress lately. This month, Accord BioPharma, Inc. selected the pharmacy as an exclusive specialty pharmacy provider for CAMCEVI (leuprolide) 42mg injection emulsion for subcutaneous use.

In April, Day One Biopharmaceuticals selected the pharmacy as a limited network specialty pharmacy for OJEMDATM (tovorafenib) for the treatment of pediatric low-grade glioma (pLGG).

Improving Demand for Healthcare: Following significant market disruption in the past three years due to COVID-19, the medical sector is witnessing improving demand across several verticals, especially surgeries. McKesson is also benefiting from a recovery in demand driving volumes, raising our optimism. Moreover, the improving prices of products are boosting sales. Rising demand for extended and primary care is expected to drive the top line for Medical-Surgical business in fiscal 2024.

Strong Q4 Results: McKesson’s robust fourth-quarter fiscal 2024 results buoy optimism. The company recorded a robust uptick in its overall top line. The revenue uptick was primarily driven by growth in the U.S. Pharmaceutical segment, resulting from increased prescription volumes, including higher volumes from specialty products, retail national account customers, and GLP-1 medications.

Downsides

Weak Trends: McKesson distributes generic pharmaceuticals, which are subject to price fluctuation. The Distribution Solutions segment continues to experience weaker generic pharmaceutical pricing trends. Continued volatility, unfavorable pricing trends, reimbursement of generic drugs, and significant fluctuations in the nature, frequency, and magnitude of generic pharmaceutical launches could have a material adverse impact on McKesson.

Stiff Competition: Distribution Solutions faces stiff competition both in terms of price and service from various full-line, short-line, and specialty wholesalers, service merchandisers, self-warehousing chains, manufacturers engaged in direct distribution, third-party logistics companies, and large-payer organizations. Moreover, the company depends on fewer suppliers for its products. As a result, it is not in a position to negotiate pricing.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita Inc. DVA, Boston Scientific Corporation BSX, and Ecolab Inc. ECL.

DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DaVita’s shares have gained 40.3% compared with the industry’s 15.2% rise in the past year.

Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.2%. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average being 7.5%.

Boston Scientific has gained 41.5% against the industry’s 1.7% decline in the past year.

Ecolab, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 14.3%. ECL’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 1.3%.

Ecolab’s shares have rallied 34.8% against the industry’s 10.8% decline in the past year.

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Boston Scientific Corporation (BSX) : Free Stock Analysis Report

Ecolab Inc. (ECL) : Free Stock Analysis Report

DaVita Inc. (DVA) : Free Stock Analysis Report

McKesson Corporation (MCK) : Free Stock Analysis Report

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