Executive Summary
This report aims to provide an in-depth analysis of McKesson’s efficiency, profitability, financial stability
and future prospects to provide equity investors with a recommendation on the stock. McKesson is traded
on the New York Stock Exchange and is in the drug wholesale industry. It is a pharmaceutical company
that offers medical supplies within the U.S as well as internationally. Its stock currently sells for $156.94.
Our analysis takes into consideration McKesson’s corporate governance, data from financial statements,
and recent stock performance. The methods used for the analysis include looking at times-series
performance of the firm for three years and cross-sectional analysis against three benchmark companies:
Cardinal Health Inc., AmerisourceBergen Corp., and The Phoenix Group. These companies were chosen
because they operate in the drug wholesaler industry and are of comparative size to McKesson. This
analysis looks at the activity, profitability, liquidity, solvency, manipulator, and market value ratios in order
to evaluate the position of McKesson relative to its benchmarks.
McKesson has weak corporate governance, as revealed by its QualityScore, with its compensation score
displaying an alarming level of governance. It faces a number of political and economic risks such as
Trump’s impact on healthcare policy and NAFTA, different international trade agreements, and fluctuations
in exchange rates with regards to its foreign operations.
As for its cash flows, McKesson generates the highest revenue from operating activities compared to its
benchmarks. Also, its dividend to total asset ratio was the lowest of all benchmarks which suggests that
McKesson places more focus on growth and expansion. Moreover, McKesson outperforms its benchmarks
when it comes to asset efficiency and presents attractive activity ratios. Its liquidity is average and its
solvency is slightly below its benchmarks. However, it exhibits poor profitability and earnings quality,
which is alarming, though its manipulator ratios indicate that it is unlikely that earnings are being illegally
manipulated.
McKesson’s stock is currently underperforming the market compared to previous years. This could be due
to political reasons such as Trump’s suggested policies or legal reasons such as McKesson’s controversy
related to the opioid crisis. This may also largely due to the fact that McKesson has failed to achieve the
numbers Wall Street expected. However, the stock is trading at a stable level.
Despite its poor profitability and earnings quality along with potential liability involving the opioid scandal,
McKesson remains the best poised of its competitors to deal with the uncertain changes to come to the
healthcare sector. We make the recommendation for McKesson to HOLD, taking into consideration its
appealing activity ratios and the relative similarity of other ratios to its benchmark companies.