McKesson Earnings: Raising the Fair Value on Strong Business Trends, Oncology Outlook, and Guidance

Narrow-moat McKesson MCK reported fourth-quarter earnings that were in line with our expectations. Total sales were up 4.2% year over year, driven by strong domestic distribution business and prescription technology solutions. Management raised long-term segment profit growth targets for each of its segments, except international, 100 to 200 basis points as synergies from additional capabilities they have added to their businesses offset incremental costs. After baking in full-year results, time value of money, share repurchases, and raising certain assumptions based on a more favorable outlook of the company, we are raising our fair value estimate to $375 from $348.

U.S. pharmaceutical sales were up 14.9%, continuing its double-digit year-over-year growth for eight consecutive quarters. Utilization trend remains strong, working as a stable baseline for the business, and increased specialty product volumes continue to fuel top line growth for the segment, with slight offsets from branded to generic conversions. U.S. oncology network added three new practices during the quarter, increasing its total number of providers roughly 25%. As oncology continues to outpace other therapeutic areas and more specialty drugs and biosimilars are adopted, we expect the company to reap benefits from increasing its presence in the space.

International segment was down 60.6% due to European divestitures as it fully sold off units in 11 of the 12 countries with previous operations. Management has guided 2024 as another difficult year for the segment (30% to 34% decline) mostly due to difficult comparisons from a full-year impact of divestiture since McKesson’s businesses in particular European countries sold earlier than others. The remaining markets in the segment are Norway and Canada and management is still looking to divest Norway. We believe the full exit from Europe will happen by mid-2025 and the years beyond to normalize, growing at low- to mid-single digits over the long term.