McKesson Corp. – Value Analysis (NYSE:MCK) : May 15, 2017

Capitalcube gives McKesson Corp. a score of 56.

Our analysis is based on comparing McKesson Corp. with the following peers – Cardinal Health, Inc., AmerisourceBergen Corporation, Henry Schein, Inc., Allscripts Healthcare Solutions, Inc., Cerner Corporation, Computer Programs and Systems, Inc., Quality Systems, Inc., Owens & Minor, Inc., Patterson Companies, Inc. and Premier Inc. Class A (CAH-US, ABC-US, HSIC-US, MDRX-US, CERN-US, CPSI-US, QSII-US, OMI-US, PDCO-US and PINC-US).

Investment Outlook

McKesson Corp. has a fundamental score of 56 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • It’s current Price/Book of 3.35 is about median in its peer group.
  • We classify MCK-US as Harvesting because of the market’s relatively low growth expectations despite its relatively high returns.
  • MCK-US‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • MCK-US‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company’s relatively low gross margin and median pre-tax margin suggest operations may be constrained on pricing versus peers.
  • While MCK-US‘s revenue growth in recent years has been above the peer median, the stock’s P/E ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company is likely overinvesting in a business with only median returns.
  • MCK-US has additional debt capacity.

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Leverage & Liquidity

MCK-US has additional debt capacity.

  • With debt at a reasonable 24.05% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 20.85%), and a well-cushioned interest coverage level of 11.37x, MCK-US has the capacity to borrow some more.
  • All 10 peers for the company have an outstanding debt balance.

MCK-US has moved to a relatively high liquidity from an Quick & Able profile at the recent year-end.

  • MCK-US‘s interest coverage is its highest relative to the last five years and compares to a low of 9.44x in 2015.
  • Compared to 2016, interest coverage has remained relatively stable for both the company (11.37x) and the peer median (11.37x).
  • MCK-US‘s debt-EV is its highest relative to the last five years and compares to a low of 16.84% in 2015.
  • The increase in its debt-EV to 24.05% from 19.90% (in 2016) was also accompanied by an increase in its peer median during this period to 20.85% from 19.90%.
  • Relative to peers, debt-EV rose 3.20 percentage points.

Access the detailed analysis for McKesson Corp.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Cardinal Health, Inc. 18.2 1.13 12.07 42.7
AmerisourceBergen Corporation 20.85 0.92 13.22 50.96
Henry Schein, Inc. 8.98 1.48 22.96 60.65
Allscripts Healthcare Solutions, Inc. 33.5 0.9 0.77 15.75
Cerner Corporation 2.83 2.19 212.33 223.58
Computer Programs and Systems, Inc. 27.96 1.24 2.51 20.86
Quality Systems, Inc. 3.06 1.14 11.37 264.94
Owens & Minor, Inc. 22.08 1.93 7.47 29.28
Patterson Companies, Inc. 23.7 1.89 8.59 25.71
Premier Inc. Class A 8.39 0.68 100.09 107.69
McKesson Corporation 24.05 1.03 11.37 39.86
Peer Median 20.85 1.14 11.37 42.7
Best In Class 2.83 2.19 212.33 264.94

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Company Profile

McKesson Corp. is a health services and information technology company, which provides medicines, pharmaceutical and care management products. It operates through the McKesson Distribution Solutions and McKesson Technology Solutions segments. The McKesson Distribution Solutions segment distributes ethical and proprietary drugs, medical-surgical supplies and equipment and health and beauty care products throughout North America. This segment also provides specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers, sells financial, operational and clinical solutions for pharmacies. The McKesson Technology Solutions segment provides software, automation, business services and consulting to hospitals, physician offices, imaging centers and home healthcare. It also provides interactive connectivity services that streamline clinical, financial and administrative communication between patients, providers, payers, pharmacies and financial institutions agencies and payers. The company was founded by John McKesson and Charles Olcott in 1833 and is headquartered in Wilmington, DE.


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