Citi Upgrades McKesson (MCK) to Buy; Discounting Rx Margin Compression
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Citi upgrades McKesson Corp (NYSE: MCK) from Hold to Buy. Price target $44.
Citi analyst says, "The majority of its business is the distribution of drugs along the pharmaceutical supply channel, which is moderating in volume and sales based on industry data and results from other companies within the drug supply chain. Unlike prior economic downturns, this business is exhibiting moderation in growth, due to a variety of macro-level economic conditions as well as prescription drug-specific factors. As such, drug distributors will have more headwinds in achieving growth rates than prior projections that our models take into consideration. Further, the increase in overall market volatility has raised the risk level associated with all stocks, including McKesson. In its favor, company's healthcare IT segment, approaching 25% of profits, should warrant a higher valuation based on the higher P/E multiples commanded by other health care information technology (HCIT) stocks; and also supplement earnings growth in the distribution business. In addition, the company offers investors an opportunity to leverage positive demographics and utilization trends in healthcare, with less regulatory, reimbursement, or pipeline risk than other sectors. Growth of drug utilization from aging, disease incidence, and Medicare drug benefit should fuel revenue growth going forward."
McKesson Corporation (McKesson) provides supply, information and care management products and services across the healthcare industry.
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