Now Is A Great Time To Buy McKesson Corporation (NYSE: MCK)

 Great Investments Are Where You Find Them

I will be honest. I first discovered McKesson Corporation (NYSE: MCK) by accident. Instead of typing in MKC for McCormick (NYSE: MKC), I keyed in MCK and up popped McKesson. Over the years I have come to appreciate that mistake very much for value and great investments are where you find them. To put things in very simple terms, McKesson Corporation is a pharma and medical devices company with business segments akin to Abbott Laboratories and Cardinal Health. The company operates in four segments to manufacture and distribute pharmaceuticals and medical devices and related services to the healthcare industries.

McKesson Is Delivering Results

What it all boils down to is results and McKesson Corporation is delivering results. The Q1 earnings report (calendar Q2) came in better than expected on the top and bottom lines proving the company’s earnings power. Revenue fell on a YOY basis as expected, largely due to slow-downs within the industry related to COVID, but beat consensus by 280 basis points. The $55.68 million reported is a mere -0.10% from last year’s Q1 and the strength is expected to carry through into coming quarters.

The bottom line results are more impressive. Adjusted earnings of $2.77 beat consensus by $0.38 or 16% while GAAP earnings of $2.72 beat by $1.03or 61%. Income at both the gross and operating levels beat consensus giving management confidence to raise the full-year guidance. Prior to today’s news, the company was expecting to see revenue and earnings fall on a YOY basis but not anymore. Now the company is looking at flat to mid-single-digit YOY growth that will accelerate to the mid-teens by fiscal 2022.

It is important to note that the current consensus for 2021 earnings and revenue are both below the new guidance. This means that we can expect to see, at least, a round of upward revisions from the analysts if not a round of upgrades. The current consensus is about $14.40 or $0.30 to $1.10 below the new range. The current consensus price target for the stock is near $172 or about 15% upside to Friday’s close. A little bit of love from the analyst’s community could easily trigger a move to such levels.

McKesson Dividend, Don’t Forget The Dividend

When I stumbled upon McKesson, and part of why I like it so much now, is the dividend. The company does not have the consistency of distribution increases you see with some but it is a dividend grower. Over the past twelve years, from 2008 onward, the company has increased its distribution 9 times for a net increase of 250%. The five-year CAGR is running in the 10% range and that includes the payment declared last week. The new payment includes a 2.4% increase that brings the yield up to about 1.10%. I know 1.1% is low, well below the broad market average, but its a safe 1.10% and one backed up by a robust outlook for growth.

Looking at the balance sheet I find nothing to make me fear the safety of this payment. The company’s cash reserves are astronomically high, not Apple quality but high, and coverage is no worry. There is some to debt to be aware of but it’s all long-term in nature and ultimately not enough to be scary. The long-term debt to capital ratio is just below 50%. The only negative is free-cash-flow, FCF is a little tight but forecast to improve greatly over the coming 12 to 24 months.

McKesson Technical Outlook: Moving Up With A Range With A Chance Of Breaking Out

Shares of McKesson have been ranging over the past couple of years but were on the verge of breaking out just before COVID hit. Since then, shares corrected along with the broad market and then staged a robust rebound that failed to set a new high for 2020. Over the past month or so price action has been meandering just above the midpoint of its trading range and now looks ready to move higher once again.

The Q1 report has shares up more than 4.0% in the premarket and trading above the 30-day EMA. The risk now is possible resistance at the $158 level. If the market can get above $158 I see a quick move to the $165 level before the stock makes its run to retest the 2020 high.