Broyhill Asset Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. For the full year ending December 31, 2021, Broyhill generated low-to-mid-twenties returns on equities. Overall performance varied depending on individual account asset allocations, legacy positions, and capital flows. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Broyhill Asset Management, in its Q4 2021 investor letter, mentioned McKesson Corporation (NYSE: MCK) and discussed its stance on the firm. McKesson Corporation is an Irving, Texas-based pharmaceutical company with a $40.5 billion market capitalization. MCK delivered an 8.95% return since the beginning of the year, while its 12-month returns are up by 52.47%. The stock closed at $270.81per share on February 19, 2022.
Here is what Broyhill Asset Management has to say about McKesson Corporation in its Q4 2021 investor letter:
“Shares of McKesson tacked on another 23% during the second half. Even after gaining 44% for the full year, the stock still trades at a 50% discount to the market. Like our Dollar Tree investment, investor sentiment around McKesson languished for years as deflating generic drug prices compressed operating margins and the uncertainty of opioid litigation capped valuation multiples. But pricing has stabilized, a global opioid settlement appears imminent, and prescription trends are rapidly recovering at the same time vaccine-related revenues are accelerating.
Since FY19, revenues have grown at 7% annually, driving earnings per share growth, which should shake out at 11% – 14% through FY22. Over this three-year period, McKesson has generated $15 billion
in cumulative free cash flow (roughly two-thirds of its market capitalization at the beginning of the period), returning roughly half of that to shareholders through repurchases (shares outstanding have
declined by 24% on $6B of buybacks) and dividends (which have increased 22% over this period), while reducing leverage from 2.8x to 1.6x.Does that sound like a business that should change hands at half the market’s valuation? We don’t think so. Even assuming shares traded back to three-quarters of the market’s multiple (in line with the
average of the past decade), shares could return 15% – 20% annually over the next few years.”
Our calculations show that McKesson Corporation (NYSE: MCK) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. MCK was in 57 hedge fund portfolios at the end of the third quarter of 2021, compared to 51 funds in the previous quarter. McKesson Corporation (NYSE: MCK) delivered a 22.59% return in the past 3 months.
In August 2021, we also shared another hedge fund’s views on MCK in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
