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On Thursday, Citi analyst Daniel Grosslight increased the price target for McKesson Corporation (NYSE:MCK) shares to $685 from $677 while reaffirming a Buy rating on the healthcare services company. The stock, currently trading near its 52-week high with a market capitalization of $77 billion, has demonstrated remarkable stability with low price volatility and maintains a "GREAT" financial health score according to InvestingPro analysis.
Grosslight’s assessment followed McKesson’s recent financial performance, which he described as a mixed quarter. The pharmaceutical segment of the business notably outperformed, attributed to the successful integration of Optum and widespread utilization throughout McKesson’s offerings, particularly in the specialty provider channel. This success aligns with the company’s overall revenue growth of ~13% year-over-year. U.S. Pharma’s adjusted operating profit (AOP) grew by 14% year-over-year, surpassing both Citi’s and consensus estimates by 2.9% and 1.7%, respectively.
Despite success in most segments, which saw double-digit AOP growth, the Med-Surg division did not meet expectations. Revenue in this segment dropped approximately 3% year-over-year, missing Citi’s and consensus estimates by 6%. Management attributed the shortfall to a weaker respiratory illness season but noted that their $100 million cost optimization strategy is progressing on schedule, with significant steps expected in the fourth quarter.
In light of the overall company performance, including the strength in the Pharma segment and certain below-the-line items, McKesson has raised its guidance. The company now anticipates 16% to 18% revenue growth and an 18.6% to 20.1% increase in adjusted earnings per share (EPS). With analyst consensus remaining bullish and InvestingPro analysis suggesting the stock is currently undervalued, this updated outlook reflects the company’s ability to navigate challenges within the Med-Surg segment while capitalizing on the robust performance of its pharmaceutical distribution operations. For deeper insights into MCK’s valuation and 14 additional expert tips, explore the comprehensive Pro Research Report available on InvestingPro.
In other recent news, McKesson Corporation reported third-quarter earnings and revenue that did not meet analyst projections. The company posted adjusted earnings per share of $8.03, falling short of the analyst consensus of $8.27, and revenue of $95.29 billion, an 18% YoY increase, but below the anticipated $95.77 billion. Nevertheless, McKesson has raised its full-year earnings guidance for fiscal 2025 to a range of $32.55-$32.95, with the midpoint of the new range slightly exceeding the analyst consensus of $32.67.
In addition, McKesson’s U.S. Pharmaceutical (TADAWUL:2070) segment, the company’s largest business unit, reported a 19% revenue increase to $87.1 billion, driven by higher prescription volumes and growth in the oncology platform. The company also disclosed a definitive agreement to acquire an 80% controlling interest in PRISM Vision Holdings, LLC, a firm specializing in ophthalmology and retina management services. Over the first nine months of the fiscal year, McKesson returned $3.1 billion to shareholders through share repurchases and dividends, underlining these recent developments.
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