3 Reasons Why We Like McKesson (MCK)

McKesson’s Remarkable Performance: A Closer Look

Over the past six months, McKesson has delivered an impressive run, with its stock price soaring by 42.9% and reaching a new 52-week peak of $988.29. Such a surge naturally raises questions for investors about the best way to respond.

Is McKesson (MCK) still an attractive investment at these levels, or is the current momentum simply the result of heightened market excitement?

What Makes McKesson Stand Out?

Founded in 1833, McKesson (NYSE:MCK) is among the oldest continuously operating companies in the United States. The company specializes in distributing pharmaceuticals and medical supplies, and also offers technology solutions to pharmacies, hospitals, and healthcare organizations.

1. Sustained Revenue Expansion

Evaluating a company’s long-term sales trajectory provides valuable insight into its overall strength. While any business can post strong results for a short period, the most resilient organizations demonstrate consistent growth over time. In the last five years, McKesson’s revenue has increased at a compound annual growth rate of 10.9%, slightly outpacing the average for healthcare companies and indicating strong demand for its products and services.

McKesson Quarterly Revenue

2. Scale Creates Competitive Advantages

Larger organizations often benefit from economies of scale, allowing them to spread fixed costs—such as infrastructure and technology—across a greater volume of goods or services, thereby reducing per-unit expenses. This scale can also enhance bargaining power with suppliers, boost brand recognition, and provide more resources for investment. When managed effectively, these advantages can reinforce a company’s market position.

With $398 billion in revenue over the past year, McKesson ranks among the largest players in healthcare. This scale is especially significant in the healthcare distribution sector, where profit margins are typically slim and high volume is essential for success.

3. Impressive Long-Term EPS Growth

Examining the growth in earnings per share (EPS) over time reveals whether a company’s increased sales are translating into greater profitability. Sometimes, revenue can rise due to heavy spending on marketing or promotions, which may not benefit shareholders in the long run.

McKesson’s EPS has climbed at a remarkable 18% compound annual growth rate over the past five years, outpacing its revenue growth. This demonstrates that the company has become more efficient and profitable on a per-share basis as it has expanded.

McKesson Trailing 12-Month EPS (Non-GAAP)

Our Verdict

These factors highlight why McKesson is considered a high-quality company with strong investment potential. Following its recent rally, the stock is trading at 22.5 times forward earnings (or $988.29 per share). Should investors consider buying at these levels, or is caution warranted?

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