MCKESSON CORP. $226(New York symbol MCK; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 232.8 million; Market cap: $52.6 billion; Price-to-sales ratio: 0.3; Dividend yield: 0.4%; TSINetwork Rating: Above Average; www. mckesson.com) is the largest wholesale drug distributor in the U.S. and Canada. It also sells surgical tools and health and beauty products.
In addition, the company makes computers and software that help clinics and pharmacies manage their drug inventories. The technology solutions division accounts for just 2% of McKesson’s revenue but supplies 12% of its earnings.
In February 2014, McKesson acquired 77.6% of Celesio AG, a German firm that distributes prescription drugs in Europe and Brazil. If you include McKesson’s share of Celesio’s cash, it paid $4.5 billion for this stake. Celesio has issued more shares since then, reducing McKesson’s interest to 75.9%.
Thanks to this purchase, McKesson’s earnings before integration costs and other unusual items soared 95.7% in the three months ended December 31, 2014, to $679 million, or $2.89 a share. A year earlier, it earned $347 million, or $1.48. Revenue jumped 36.9%, to $47.0 billion from $34.3 billion.
McKesson ended the quarter with cash of $4.6 billion, or $19.77 a share, and its long-term debt of $9.0 billion is a moderate 17% of its market cap. That gives it plenty of room to make more acquisitions, including buying the rest of Celesio.
The company’s fiscal 2015 earnings should rise 30.3%, to $10.88 a share from $8.35 in 2014. The stock trades at a somewhat high 20.8 times that estimate, reflecting high investor expectations. That adds risk, particularly if the company runs into trouble integrating Celesio. The $0.96 dividend yields 0.4%.
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