3. McKesson Corporation (NYSE:MCK)
Number of Hedge Fund Holders: 57
McKesson Corporation (NYSE:MCK) provides healthcare services. In late March, authorities in Europe approved the sale of the European businesses of McKesson to Phoenix. The latter will take control of the former’s interests in Italy, Ireland, Portugal, Belgium, and Slovenia as part of the deal. The sale of the French business of McKesson is still under review as the company is the largest wholesaler in France. Berkshire owns more than 2.9 million shares in the firm worth $894 million, representing 0.24% of the portfolio.
On May 11, Credit Suisse analyst AJ Rice kept an Outperform rating on McKesson Corporation (NYSE:MCK) stock and raised the price target to $377 from $333, noting that the firm had posted quarterly results below expectations but announced affirmative initial guidance for 2023.
Among the hedge funds being tracked by Insider Monkey, New York-based firm Pzena Investment Management is a leading shareholder in McKesson Corporation (NYSE:MCK), with 2.7 million shares worth more than $827 million.
At the end of the fourth quarter of 2021, 57 hedge funds in the database of Insider Monkey held stakes worth $2.5 billion in McKesson Corporation (NYSE:MCK), up from 51 in the previous quarter worth $2.2 billion.
In its Q4 2021 investor letter, Broyhill Asset Management, an asset management firm, highlighted a few stocks and McKesson Corporation (NYSE:MCK) was one of them. Here is what the fund said:
“Shares of McKesson Corporation (NYSE:MCK) 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 Corporation (NYSE:MCK) 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.”
