On Wednesday, Baird raised the price target on shares of McKesson Corporation (NYSE:MCK) to $671.00, up from the previous $603.00, while maintaining an Outperform rating on the stock. Despite McKesson's fiscal fourth-quarter results falling short of expectations, with earnings per share (EPS) down approximately 14% and adjusted operating income (AOI) roughly flat year-over-year, the firm's outlook remains positive.
The analyst from Baird noted that while any other company might suffer from such a quarterly performance, McKesson is an exception due to the market's tendency to overlook short-term fluctuations in favor of the company's track record for annual growth.
The analyst's confidence is bolstered by McKesson's guidance for fiscal year 2025, which forecasts robust growth. The guidance is not directly comparable to the published consensus due to the recent Optum win, but it still shows a strong outlook with revenue expected to increase by 15%-17%, AOI by 9%-14%, and EPS by 14%-17%. These projections exceed the market's preliminary estimates.
The company's forecast also suggests strong free cash flow (FCF) for the upcoming year. Despite the missed metrics in the most recent quarter, the analyst anticipates that any initial market volatility will be short-lived, with the stock likely to return to its usual performance trajectory soon after.
McKesson's share price movement in the near term may experience some volatility at the opening, as investors digest the fourth-quarter results in contrast with the bullish guidance for the next fiscal year. Still, the analyst's remarks suggest that the stock is expected to stabilize as the focus shifts to the company's promising future financial performance.
InvestingPro Insights
McKesson Corporation (NYSE:MCK) has demonstrated a commitment to shareholder value with aggressive share buybacks and a reliable dividend history, having raised its dividend for 16 consecutive years. The company's stock trades with low price volatility, offering a sense of stability for investors.
Moreover, McKesson has maintained dividend payments for 31 consecutive years, indicating a strong track record of returning value to shareholders. This aligns with the positive sentiment expressed by Baird's analyst despite the recent fiscal fourth-quarter performance.
From a valuation perspective, McKesson is trading at a P/E ratio of 24.37 and a slightly higher adjusted P/E ratio for the last twelve months as of Q3 2024 at 25.9. While the company is trading at a high P/E ratio relative to near-term earnings growth, it is also trading at a low revenue valuation multiple, suggesting an attractive entry point based on revenue. The company's revenue growth over the last twelve months has been robust at 10.08%, outpacing the quarterly revenue growth of 14.77% for Q3 2024.
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