Stock Strategist

McKesson Is Deeply Discounted

Vishnu Lekraj

Despite the tumult that has engulfed its operating environment, we believe  McKesson (MCK) will remain a key healthcare player and be able to produce outsize economic value. Its fiscal second quarter reflected a stabilization of near-term issues as the company reported earnings above consensus and raised the lower end of its full-year earnings per share guidance. After factoring in these latest results, we are reiterating our $210 fair value estimate and wide economic moat rating for the pharmaceutical distributor. Given the company’s current stock price, we believe McKesson presents an opportunity for investors to own a quality asset at a deeply discounted price.

While we believe there may be some material changes in how the U.S. pharmaceutical market operates over the next several years, the need to source and deliver drugs efficiently and cost-effectively will not change. We believe this fundamental factor has formed a strong foundation for McKesson, as its core drug wholesaling operations will be needed by both drug manufacturers and retail pharmacies no matter how any market dynamics shift.

Vishnu Lekraj does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.

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