Covering Analyst: Cecilia Xia
ceciliaxia89@gmail.com
Company Overview
Company Overview
› Oldest Healthcare Company
› Found by John McKesson and
Charles Olcott in 1883
› 180 years
› Delivers Pharmaceuticals, Medical
supplies and healthcare IT
› Headquartered in San Francisco
Company Overview Cont.
› Nation’s largest health-care
provider
› Recognized by Fortune
magazine as the #1 healthcare
distributor for innovation,
people management and
financial soundness.
› Is ranked at 14th on the Fortune
500
Business Segments
Business Segments
› Distribution Solutions
› Technology Solutions
Revenue Segment
2012 Revenue
(In Million)
2013 First Three
Quarters Revenue
(In Million)
Distribution Solutions
119,424
(97.30%)
89,347
(97.29%)
Technology Solutions
3,310
(2.70%)
2,488
(2.71%)
Distribution Solutions FY12 Milestones
› U.S. Pharmaceutical
– Grew Rev. 7%; Expanded Health Mart from 2,787
to 2,941 stores; Grew OneStop Generics 8%
› Specialty Health
– Completed integration of US Oncology
› Canada
– Grew Rev. 5%; achieved profit growth in a difficult
regulatory environment
› Medical-Surgical
– Grew Rev. 8%; Pharmaceutical sales to physician
offices grew 12%
› Pharmacy Systems & Automation
– Grew Rev. 22%; increased customer 23%
Market Share : Leading Market Position
Segments
Market share
U.S. Pharmaceutical #1
Specialty Health
#2
Medical-Surgical
#1
McKesson Canada
#1
Technology Solutions
› 2.7% of total revenue, 15% of the operating profit
› 45.62%, 43.97% Profit Margin in 2012, 2011
Industry Analysis
Industry Analysis
› Government Spending:
– 1.2 trillion in 2013 (19.05% of GDP)
– 1.1 trillion in 2012 (17.74% of GDP)
› Affordable Care Act:
– 950 billion cost over 10 years
– 15 % (32 million) currently uninsured
› Health Information Technology for Economic and Clinical Health
Act:
– Required install Healthcare Information Technology
› Brand-to-Generic
– Better Profit Margin, Lag on Topline
› Generic New Approvals
– More products available, Industry moving fast
Create Shareholder Value
Increasing Dividend
› FY07: $0.24
› FY12: $0.80 (233% increase)
Acquisitions
FY07-FY12:
17 Acquisitions Distribution Solutions (4.1 Billion)
17 Acquisitions Technology Solutions (2.2 Billion)
Share Repurchase
› Since FY 07: Diluted Weighted Average Shares Outstanding
› Additional $500 million repurchase on top of $360 million this quarter
350
305
300
298
279
273
263
250
251
200
150
100
50
0
FY07
FY08
FY09
FY10
FY11
FY12
Comparable Analysis
Comparable Analysis
› AmerisourceBergen Corporation – 50%
› Cardinal Health – 15%
› Owens & Minor – 15%
› Henry Schein – 10%
› Omnicare – 10%
Metrics
DCF Analysis
Revenue Model
› Steady Revenue Growth – DS
› 5% CAGR
› Estimate 1.05%- 2.1% for year 2013 to 2018
$125.00
$119.00
$120.00
$115.00
$109.00
$110.00
$106.00
$105.00
$104.00
$100.00
$95.00
FY09
FY10
FY11
FY12
Revenue Model
› Steady Revenue Growth – TS
› 2% CAGR
› Estimate 1.86%-3.3% for year 2013-2018
$3.35
$3.31
$3.30
$3.25
$3.20
$3.20
$3.15
$3.10
$3.12
$3.06
$3.05
$3.00
$2.95
$2.90
FY09
FY10
FY11
FY12
Working Capital Model & DCF Model
› Percent of Revenue
› COGS: different than I/S
› SG&A: Grouped together in Qs
Intermediate Growth Rate:
3.00%
2019E
1,677.25
2020E
1,727.57
2021E
1,779.40
2022E
1,832.78
2023E
1,887.76
1,068.65
1,024.12
981.45
940.55
901.36
Final Valuation
Questions
Recommendation
› Based on my comparable model and DCF analysis, MCK is trading
at a discount. The industry trend will provide the company more
growing opportunity.
› I recommend a buy for Tall Firs and Svigals
Appendix – Brand-to-Generics
U.S. Oncology Aquisition
› November 2010 mck spent $2.16 billion to buy us
oncology
› a physician practice management company for cancer
doctors and with a more than 17% of all cancer patients.
› It sells lots of medical equipment and drugs to doctors’
offices. It is like a big customer plugged in as a
subsidiary.
› Amerisourcebergen and cardinal health the two biggest
providers of cancer drugs will no longer have the
opportunity to sell to U.S. Oncology practices.
›
Reimbursement
› Reimbursement: The president and congressional
republicans are still looking for common ground on fiscal
cliff measures, including a postponement of scheduled
Medicare payment cuts, which would result in a 27
percent reduction in reimbursement to all Medicare
providers
Appendix – Profiles of MCK Distribution
Solution
TS- Relayhealth
› 28,000+ healthcare transactions/minute
› 2000+ hospitals & health systems
› 80+ health information exchanges
› 200,000+ Physicians
› 1900 Payers
› 21Million + Patient records
› 50,000 + Retail Pharmacies
Appendix – Management Team (DS)
Appendix – Management Team (TS)