Analyst Note| Soo Romanoff |
Narrow-moat McKesson reported notably strong second-quarter revenue growth driving profit upside as it flexes scale. The early distributor trend suggests resumption of most patient volumes and associated spike in demand for personal protective equipment as providers reopen with heightened safety precautions. The quarter also benefited from continued strength in specialty drugs that carry higher prices in addition to the Health and Human Services vaccine kitting contract win. Despite the mix shift toward this lower-margin revenue, the government reimbursements for kitting preparation and the volume spike provided leverage to handily exceed expectations by nearly $0.90. Management pared back conservatism expressed in the prior quarter with revised guidance yet hedged with the potential for fluctuations with a nonlinear recovery. We are raising our full-year normalized EPS to $16.54 from $15.48, largely to reflect the better-than-anticipated quarter. There may be additional upside as vaccines are approved by the U.S. Food and Drug Administration (not reflected in guidance) as McKesson is the largest vaccine distributor.