On Tuesday, McKesson Corporation (NYSE:MCK) experienced a shift in stock analyst ratings. Baird has downgraded the healthcare company from "Outperform" to "Neutral." Accompanying this downgrade, the firm also adjusted its price target for McKesson shares to $531 from the previous $603.
The adjustment follows a period of challenges for McKesson, as noted by Baird. The company has recently faced two negative earnings reports and has revised its second-quarter fiscal year forecasts downward twice. These developments have contributed to a growing apprehension among investors as the company approaches its November financial update.
Baird cited several factors for its decision, including concerns that have accumulated over the past few months. The firm acknowledged the broader financial outlook for McKesson remains stable regarding earnings per share (EPS) and cash flow (CF).
However, Baird expressed diminishing confidence in McKesson's ability to exceed expectations and raise forecasts, which had been higher due to long-range plans.
The firm suggests that for McKesson to regain favor with investors and analysts, it may need to recalibrate its strategy. Baird's commentary indicates a cautious stance, as they anticipate the company's shares could decline leading into the November update, which will be closely watched by the sell-side community.
This rating change and price target revision reflect Baird's current position on McKesson as the company navigates through a period of uncertainty and heightened scrutiny from the investment community.
In other recent news, McKesson Corporation reported robust first-quarter revenues for fiscal 2025 of $79.3 billion, a 6% increase from the previous year. The company's adjusted earnings per diluted share rose by 8% to $7.88, leading to an updated full-year guidance.
McKesson also announced a 15% increase in its quarterly dividend and approved an additional $4 billion for share repurchases. Significant acquisitions include Florida Cancer Specialists and a controlling interest in Core Ventures, valued at $2.49 billion.
Analysts from firms such as Jefferies, Baird, TD Cowen, and BofA Securities have provided insights into McKesson's performance, with Jefferies and Baird maintaining a Hold and Outperform rating respectively, while TD Cowen and BofA Securities retain their Buy ratings.
These recent developments highlight McKesson's strategic moves in the healthcare industry, with a focus on earnings and revenue results, mergers, and analyst upgrades.
InvestingPro Insights
As McKesson Corporation (NYSE:MCK) contends with a recent downgrade by Baird and investor concerns, insights from InvestingPro reveal a mixed financial landscape. Despite the challenges, the company has demonstrated a commitment to shareholder returns, as evidenced by a consistent history of dividend increases, with dividends raised for 16 consecutive years and maintained for 31 consecutive years. This may offer some reassurance to investors looking for stability in their investments. Moreover, McKesson's management has been actively engaging in share buybacks, signaling confidence in the company's intrinsic value.
From a valuation standpoint, McKesson is trading at a low revenue valuation multiple, which could indicate a potential undervaluation relative to its revenue generation. However, the company is grappling with weak gross profit margins, as the latest data shows a gross profit margin of 4.05% over the last twelve months as of Q1 2025. Analyst sentiment appears cautious, with 10 analysts revising their earnings expectations downwards for the upcoming period, possibly reflecting the concerns raised by Baird.
Investors seeking deeper analysis will find additional InvestingPro Tips for McKesson, which delve into the company's market position, profitability, and financial health. For a comprehensive understanding of McKesson's investment potential, interested parties are encouraged to explore the full suite of insights available on InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.