Barclays has maintained its Equalweight rating and $76.00 price target for McKesson Corporation (NYSE: NYSE:MCK).
The firm acknowledged McKesson's sequential improvement in organic sales and gross margins, which exceeded their models. Additionally, the company raised its full-year fiscal year 2024 adjusted earnings per share (EPS) forecast slightly at the midpoint, following a third-quarter fiscal year 2024 earnings beat.
McKesson reported a 0.6% year-over-year volume growth, marking a turnaround after ten consecutive quarters of decline.
The performance positions the company as one of the first large-cap packaged food companies to see positive year-over-year volume this year. Both organic sales and operating income surpassed Barclays' expectations for the company's two segments.
The better-than-expected gross margin and relative selling, general, and administrative (SG&A) expenses contributed approximately $0.07 to the $0.17 earnings beat compared to Barclays' estimates.
A significant portion of the remaining beat was attributed to a lower-than-anticipated tax rate. Despite the positive earnings surprise and the updated EPS outlook, McKesson still anticipates a 4-6% year-over-year growth in adjusted EBIT, hinting at potential timing shifts in financial performance between the third and fourth quarters of fiscal year 2024.
Barclays suggests that McKesson's strategy for fiscal year 2024 was to narrow key price gaps to stimulate volume growth, and the current results indicate that the company is making headway in this area.
In other recent news, McKesson Corporation reported robust first-quarter revenues for fiscal 2025 of $79.3 billion, marking a 6% increase from the previous year. Adjusted earnings per diluted share rose by 8% to $7.88, leading to an updated full-year guidance.
The company also announced a 15% increase in its quarterly dividend and approved an additional $4 billion for share repurchases. On the merger front, McKesson made significant acquisitions, including Florida Cancer Specialists and a controlling interest in Core Ventures, valued at $2.49 billion.
These strategic moves are expected to consolidate Florida Cancer Specialists' procurement operations and add an estimated $3.6 billion in oncology spending to McKesson's platform.
Analysts' views have varied, with Deutsche Bank cutting its price target for McKesson, while Baird downgraded the stock from "Outperform" to "Neutral." However, firms such as Jefferies, TD Cowen, and BofA Securities maintain a Hold, Buy, and Buy rating respectively, expressing confidence in McKesson's long-term prospects.
InvestingPro Insights
McKesson Corporation's recent performance aligns with several key insights from InvestingPro. The company's revenue growth of 10.46% over the last twelve months and 6.44% in the most recent quarter supports Barclays' observation of sequential improvement in organic sales. This growth is particularly noteworthy given McKesson's position as a prominent player in the Healthcare Providers & Services industry.
InvestingPro Tips highlight that McKesson has maintained dividend payments for 31 consecutive years and has raised its dividend for 16 consecutive years, demonstrating a commitment to shareholder returns. This is further emphasized by the company's aggressive share buyback program, as noted in another InvestingPro Tip. These actions align with McKesson's strong financial performance and may contribute to investor confidence.
While the article focuses on McKesson's recent earnings beat and improved volume growth, it's worth noting that the company operates with a moderate level of debt and has cash flows that can sufficiently cover interest payments, according to InvestingPro Tips. This financial stability could provide McKesson with flexibility as it continues to navigate market challenges and pursue growth strategies.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for McKesson, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.