On Wednesday, TD Cowen expressed a positive stance on the healthcare supply chain, with a particular focus on McKesson shares (NYSE:MCK), a prominent player in the Healthcare Providers & Services industry with an impressive "GREAT" Financial Health score according to InvestingPro. Analyst increased the price target on McKesson to $695 from $651, while reiterating a Buy rating on the stock.
Analyst's optimism is rooted in the expectation of high single-digit to low double-digit drug utilization driving core growth across the sector. This aligns with McKesson's strong performance, evidenced by its ~13% revenue growth and impressive 23% return over the past year.
The analyst highlighted the potential for distributors to gain from the expansion in specialty sales. (InvestingPro subscribers have access to 12 more key insights about McKesson's growth potential.)
The analysis suggests that distributors are well-placed to achieve earnings growth that surpasses consensus forecasts for 2025, with specialty sales and related businesses being key contributors. McKesson, in particular, is seen as the company most likely to exceed performance expectations in the market. The upward revision in the price target reflects these prospects and is based on a discounted cash flow (DCF) analysis.
The analyst also took into account recent strategic moves by McKesson, including the acquisition of FCS and the divestiture of Rexall. These changes have been integrated into TD Cowen's model, leading to an updated forecast for the company's adjusted earnings per share (EPS) for fiscal years 2025 and 2026, which are now estimated at $32.53 and $37.53, respectively.
The new price target of $695 is anchored on the belief that McKesson shares can trade at 19 times the projected adjusted EPS of $36.45 for calendar year 2025. This target aligns with InvestingPro's Fair Value analysis, which suggests the stock is currently slightly undervalued.
The company's strong fundamentals, including consistent dividend payments for 31 consecutive years and low price volatility (Beta: 0.52), support this valuation. For deeper insights, investors can access McKesson's comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, McKesson Corporation (NYSE:MCK) has been making strategic moves to optimize its growth. The company recently completed the sale of its Rexall and Well.ca businesses to Birch Hill Equity Partners, a decision that allows McKesson to focus on its oncology and biopharma services. This divestiture aligns with McKesson's commitment to prioritize resources in areas with the highest potential for growth and innovation.
In terms of financial performance, McKesson's second-quarter fiscal 2025 results indicate a strong operational performance. The company's substantial oncology platform, valued at approximately $35 billion, is projected to contribute to a 12-14% increase in earnings per share compound annual growth rate over the next three to five years.
Analyst firms have also weighed in on McKesson's position. Mizuho (NYSE:MFG) has initiated coverage on McKesson with a Neutral rating, influenced by the company's expanded business model and recent positive developments.
On the other hand, Jefferies has raised its price target for McKesson to $715, maintaining a Buy rating for the company's shares. These are recent developments that reflect the company's performance and market position.
Investors and stakeholders interested in further details about the divestiture and financial performance can refer to McKesson's Investor Relations website. McKesson's steadfast performance and robust long-term outlook have reinforced analysts' positive stance on the stock.
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