With a recent daily loss of 3.57%, yet a 3.76% gain over the past three months, McKesson Corp (MCK, Financial) presents an intriguing case for investors. The company's solid Earnings Per Share (EPS) of 25.31 suggests robust financial health, but the question remains: is McKesson modestly overvalued? This article delves into a detailed valuation analysis to address this question and provide readers with an informed perspective on McKesson's stock value.
Company Introduction
McKesson Corp (MCK, Financial) is a powerhouse in the U.S. pharmaceutical wholesale industry, operating alongside Cencora and Cardinal Health, with a commanding 90% market share. The company's reach extends beyond the U.S., with significant operations in Canada. McKesson's current stock price of $453.82 is juxtaposed against the GF Value of $377.29, suggesting a possible overvaluation. This introduction sets the stage for a deeper examination of McKesson's intrinsic value, blending financial scrutiny with key company insights.
Summarizing the GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock like McKesson (MCK, Financial) by considering historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and projections of future business performance. When a stock's price significantly exceeds the GF Value Line, it may be overvalued, indicating potential for poor future returns. Conversely, a price below the GF Value Line suggests undervaluation and the possibility of higher future returns. Currently, McKesson appears modestly overvalued, which could mean its long-term stock returns may not align with business growth.
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Financial Strength
Before investing, assessing a company's financial strength is crucial. Companies with poor financial health pose a higher risk of loss. McKesson's cash-to-debt ratio of 0.35 ranks below average compared to industry peers. However, its overall financial strength score is a fair 7 out of 10.
Profitability and Growth
Long-term profitability is a key indicator of a company's investment potential. McKesson has maintained profitability for 9 out of the past 10 years, with a revenue of $291.10 billion and an EPS of $25.31 over the past twelve months. Despite its operating margin of 1.55% being lower than many competitors, the company's overall profitability is strong, with a ranking of 8 out of 10. Growth is equally vital, as it is closely linked with long-term stock performance. McKesson's 3-year average annual revenue growth of 15.2% and EBITDA growth rate of 44.6% are impressive, ranking well within the Medical Distribution industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another way to gauge profitability. McKesson's ROIC of 19.45 is significantly higher than its WACC of 7.39, indicating the company is effectively creating shareholder value.
Conclusion
In summary, McKesson (MCK, Financial) is currently seen as modestly overvalued. The company's financial condition is fair, and its profitability is strong, with growth outpacing much of its industry. For a more detailed look at McKesson's financials, investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
