McKesson (MCK) reported strong fourth quarter 2011 results with EPS of
$1.66, outpacing the Zacks Consensus Estimate and the year-ago earnings. Revenues climbed 8% to $28.9 billion. McKesson's fiscal 2012 guidance was also above expectations. The company expects fiscal 2012 earnings in the range of $5.99 and $6.19
per share.
Based on the company s performance and the encouraging outlook for fiscal 2012, we are upgrading McKesson to Outperform from Neutral. McKesson is a major player in the pharmaceutical and medical supplies distribution market, and we believe that several factors like an aging population, increased use of generics, and growing demand for specialty pharmaceutical products, especially oncology drugs, should help drive growth in the Distribution Solutions segment.
McKesson's current trailing 12-month earnings multiple is 15.7, compared with the industry average of 26.6 and 17.5 for the S&P 500. The stock is currently trading at 13.7x our fiscal 2012 estimate. Our target price of $100 is based on 16.4x our estimate for fiscal 2012.
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