McKesson's Compounding Keeps Adding Up

War, $117 oil, closed shipping lanes, and they still got paid (From Freedom Financial)

McKesson (NYSE: MCK) keeps moving medicines around the country and that keeps the money coming in.

The company operates in the unglamorous middle of healthcare. It distributes enormous amounts of pharmaceuticals, serves specialty medical practices, and, behind the scenes, has been reshaping its business mix.

This combination of steady work and strategic focus has made McKesson among the more consistent winners in the market over the past several years.

Analysts and investors like it. The company’s continuing growth, strong cash flow, and expanding earnings have not gone unnoticed. The question for new investors is how patient they are and whether the upside is worth it.

Strong Results Continue

McKesson closed out its fiscal 2026 year as strong as it began. Its fourth quarter, ended March 31, showed revenue came in at $96.3 billion, up 6%, though below what analysts expected. Earnings per diluted share reached $13.71, an increase of $3.70. The growth was driven by higher prescription volumes in its North American Pharmaceutical operations and continued expansion in Oncology & Multispecialty. Adjusted earnings per diluted share rose 16% to $11.69, above analysts’ expectations.

For the full fiscal year, McKesson delivered consolidated revenues of $403.4 billion, up 12%, while earnings per share (EPS) climbed to $38.38. Adjusted EPS reached $39.11, an 18% increase, which exceeded the company's previously announced long-range growth targets.

Cash Flow Fuels Growth

As a distributor, the business also throws off a lot of cash. During the quarter, McKesson produced $3.4 billion of cash flow from operations and about $3.2 billion in free cash flow after $185 million of capital expenditures, the company said.

For the year, McKesson generated $6.2 billion of cash flow from operations. The free cash provides plenty of funds for both investment in oncology and specialty capabilities and continued share repurchases.

Indeed, the company said it launched a $2.25 billion accelerated share-repurchase program. The board also approved a $5 billion increase to the overall repurchase authorization, lifting total buyback capacity to $7.7 billion as of April.

Guidance Keeps Rising

Given the results, the company again raised its forward guidance. In February, McKesson raised and narrowed its fiscal 2026 adjusted EPS guidance to a range of $38.80 to $39.20. That was up from an earlier range of $38.35 to $38.85.

When announcing its latest results in May, it went a step further, issuing fiscal 2027 guidance of $43.80 to $44.60 in adjusted earnings per diluted share, implying 12% to 14% growth. It also reaffirmed a long-term adjusted EPS growth target of 13% to 16%.

The Business Keeps Evolving

As the company looks ahead, it’s also reviewing its current business mix and actively reshaping aspects of its operations.

In February, the company completed the sale of its Norwegian retail and distribution businesses to NorgesGruppen as part of a plan to exit European operations entirely.

Earlier in the fiscal year, McKesson also took controlling interests in PRISM Vision Holdings and Core Ventures, expanding its footprint in ophthalmology, oncology, and specialty practice support. These interests continue the company’s focus on a higher-value business mix rather than moving pharmaceuticals alone.

Wall Street Stays Bullish

Given its track record, McKesson has attracted significant support on Wall Street.

The 17 analysts following the stock have a consensus Moderate Buy rating on the stock, with 14 recommending Buy and three suggesting Hold. With a 12-month average target price of $962.67 per share, the likely upside is moderate given the shares’ persistent strong showing. The highest target is $1,085 per share, and the lowest is $812.

Shares did suffer a setback earlier this year as the stock pulled back from its 52-week high near $1,000, though that came primarily because of market sentiment and likely some profit-taking. Its price/earnings ratio of roughly 23 remains in line with similar companies in the medical sector, including Cencora (NYSE: COR), yet well below Cardinal Health (NYSE: CAH).

McKesson does pay a quarterly dividend and recently raised it 15% to 94 cents per share, marking the company's 17th consecutive annual increase. The yield, however, of just 0.4% would not make this primarily an income investment.

Steady Growth Carries Some Risks

Instead, investors turn to McKesson for its consistency and steady appreciation. McKesson combines a massive distribution business with a growing specialty platform, strategic acquisitions, notable free cash flow, aggressive buybacks, and a history of guidance that points to disciplined, long-term growth.

There are risks, including payment defaults, policy shifts, supply disruptions, and competition, which can surface unexpectedly. And the stock price itself is no bargain, having built in an expectation of growth that could be challenging to sustain.

Even so, investors looking to avoid cyclical stocks in a market that rewards operational consistency might want to keep McKesson on the list.

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