4. McKesson Corporation (NYSE:MCK)
Number of Hedge Fund Holders: 59
McKesson Corporation (NYSE:MCK) is a Texas-based healthcare services company, operating through four segments – U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions. On May 5, McKesson Corporation (NYSE:MCK) posted a Q1 revenue of $66.10 billion, outperforming market consensus by $2.28 billion. McKesson Corporation (NYSE:MCK) declared on July 28 a quarterly dividend of $0.47 per share. The dividend is payable on July 1, to shareholders of record on June 1.
Deutsche Bank analyst George Hill upgraded McKesson Corporation (NYSE:MCK) on June 7 to Buy from Hold, raising the price target to $378 from $343. The analyst is highly concerned about recessionary threats in the United States and is seeking out defensive equity holdings. With its fiscal 2023 guidance now in the rear view, a refocused business after corporate divestitures, the opioid overhang resolved, and “solid multi-year visibility,” McKesson Corporation (NYSE:MCK) stock has a positively skewed risk/reward profile yet again, the analyst told investors. He noted that the company is aiming for double-digit “sustainable and visible” earnings and cash flow growth in a defensive non-cyclical sector with largely visible demand, while trading at a discount to peers.
According to Insider Monkey’s data, McKesson Corporation (NYSE:MCK) was part of 59 public hedge fund portfolios at the end of March 2022, up from 57 funds in the earlier quarter. Richard S. Pzena’s Pzena Investment Management is one of the significant shareholders of the company, with 2.70 million shares worth $827.3 million.
Here is what Broyhill Asset Management has to say about McKesson Corporation (NYSE:MCK) 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.”
