McKesson (MCK, Financial) stepped into the new fiscal year on a bright note, posting robust results. The results exceeded the company’s expectations. McKesson's performance improved due to the strength of its distribution solution. Management is pleased with the results, and it is now expecting a stronger performance in the future. It has also posted an upbeat outlook for the current quarter, indicating that McKesson can continue improving going forward.
Expecting better times ahead
The company is focusing on improving its operations. McKesson is focusing on core assets and is selling non-core assets to improve its margins. As a part of this move, it has sold its clinical and financial systems, which were a part of its International Technology business. After this step, McKesson is exploring ways to reclassify its business following a discontinued operation.
Moving on, McKesson is seeing good growth opportunities within North American distribution and in services for its Pharmaceutical business. It is counting on McKesson specialty and McKesson Canada, which delivered better-than-expected results in the previous quarter. McKesson is expecting these two to perform better in the coming quarter, and this can also be a key growth driver for the company in the future. In addition, McKesson is also witnessing good traction across its generic and branded pharmaceuticals.
Key partnerships
Moreover, McKesson is seeing solid progress in the execution of its agreement with Rite Aid (RAD, Financial). Moreover, the company is counting on the extension of distribution relationship with CVS Caremark (CVS, Financial) until June 2019. This is a good move by the company, and it thinks that with this initiative, McKesson's prospects will improve in the long term. The company enjoys a good image in the market due to its best-in-class services that attract many customers. As a result, McKesson is pleased with the performance of the pharmaceutical business, and it is expecting further traction for these products, driving its revenue to higher levels in the coming quarters.
McKesson also has a diverse portfolio, which makes it unique in the market. It is seeing robust growth opportunities in the specialty segment. Internationally, in Canada, McKesson is also seeing positive response. This market has already delivered solid earnings growth in the recently reported quarter, and the company expects this momentum to continue.
Conclusion
The stock, however, looks quite expensive with trailing P/E of 36.63. But a forward P/E of 16.25 indicates rapid earnings growth in the future. In the next five years, its earnings are expected to grow at a CAGR of 15.78%, which is slightly lower than 17.28% average of the industry. Considering all the aspects, I would like to suggest that investors can pick the stock for both the long and short runs.
