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In this updated coverage research report, we reexamine McKesson Corporation — MCK 0.00%↑ — a health care sector company, to see if it continues to meet QualityValue Investing’s (QVI) Real-Time Stock Picks criteria based on our proprietary checklist analysis of the business’s current wealth and the share price’s present value.
McKesson | Current Wealth
Value Proposition
McKesson. is a dividend-paying large-cap stock in the health care sector’s distributors industry. It was added to the QVI Real-Time Stock Picks on March 6, 2018, at a cost basis of $142.87 per share, adjusted for dividends paid in cash.
McKesson Corporation provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International. McKesson Corporation was founded in 1833 and is headquartered in Irving, Texas, USA.
Economic Moat
Morningstar assigns McKesson a narrow moat rating based on the U.S. drug distribution market. McKesson’s customers’ unlikeliness to move to a different distributor — switching costs — should uphold its competitive position in the space and continue to support economic profits.
QVI’s Value Proposition Elevator Pitch for MCK
McKesson is the best breed in the U.S. drug distribution oligopoly, equating to a long-term competitive position in the healthcare-dominated 21st century.
QVI’s value proposition rating for McKesson: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
As the table below shows, McKesson’s trailing three-year annualized revenue growth was high-single-digit positive but lagged behind the S&P 500’s topline growth of +16.90%. In contrast, the company’s positive revenue growth of +13.40% better aligned with the broader market’s +19.50% increase for the most recently reported twelve months.
Further down the income statement, McKesson had a positive low-single-digit net profit margin from a 3.92% gross margin, typical of the distributor space. However, it underperformed compared to the S&P 500’s net profit of 21.00% from a gross margin of 54.10%.
Returns on Equity and Invested Capital
McKesson’s senior management produced a negative return on equity, or ROE, below QVI’s targeted threshold and trailing the S&P 500’s ROE of 56.30%. McKesson attributes its declining ROE to the effects of its legal settlements related to the opioid crisis.
Stock buyback programs can elevate ROE, and McKesson has a history of share repurchases. In July 2024, the company announced an increase in its equity buyback plan, authorizing an additional $6 billion.
McKesson’s return on invested capital, or ROIC, exceeded QVI’s threshold and aligned with the broader market’s 23.70% return. In addition, the company’s ROIC exceeded its weighted average cost of capital, or WACC, demonstrating that its senior executives are excellent capital allocators (Source of WACC: GuruFocus).
QVI’s business fundamentals rating for McKesson: Neutral.
Click or Pinch Out to Expand
Next, we’ll examine the company’s enterprise downside risks, the stock price’s present value, including share price downside risks, and the investment thesis, all exclusive to Quality Value Investing’s premium (paying) subscribers.
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Unless noted, all data presented is sourced from Charles Schwab & Co., Yahoo Finance, and McKesson Corp. as of the market and close on December 26, 2024, and is intended for illustration purposes only.
Disclosure: As of the date of this research report, I/we hold a long, beneficial position in MCK common shares in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider, as appropriate, consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
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