MCKESSON CORP. $78 (New York symbol MCK; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 254.3 million; Market cap: $19.8 billion; Price-to-sales ratio: 0.2; Dividend yield: 0.9%; TSINetwork Rating: Average; www.mckesson.com) is the largest wholesale drug distributor in the U.S. and Canada. It also owns 49% of Mexico’s largest drug distributor. McKesson’s customers include 40,000 pharmacies, as well as doctor’s offices, hospitals and clinics. The company also supplies surgical tools and health and beauty products.
McKesson continues to see strong growth from its technology-solutions division, which makes computers and software that help pharmacies and clinics manage their drug inventories. This division accounted for just 3% of McKesson’s sales, but around 25% of its earnings.
In its 2011 third quarter, which ended December 31, 2010, McKesson’s earnings fell 52.5%, to $155 million, or $0.60 a share. It earned $326 million, or $1.19 a share, a year earlier. The drop was mainly due to a $189-million charge related to a class-action lawsuit that accused the company of inflating prescription-drug prices. If you exclude all unusual items, McKesson would have earned $1.22 a share in the latest quarter.
The company recently bought US Oncology, a privately held company that sells drugs, research and administrative services to over 500 cancer-care facilities in the U.S. Over 1,300 physicians in 39 states use its services. McKesson paid $200 million for US Oncology, and assumed $1.9 billion of its debt.
McKesson already sells drugs to many of US Oncology’s clients, so this purchase should lower its distribution costs. As well, McKesson will have the opportunity to sell its drug-management systems to US Oncology’s customers.
McKesson’s total debt rose to $4.1 billion after the US Oncology purchase. That’s still a moderate 21% of its market cap. The company also holds cash of $3.2 billion, or $12.65 a share.
The stock has gained 35% in the past seven months. Even so, it trades at a reasonable 15.9 times McKesson’s likely 2011 earnings of $4.90 a share.
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