1.
1
Company Description
McKesson Corporation, ranked 11th on the Fortune 500
companies, provides pharmaceuticals, medical supplies,
and healthcare information technology that make healthcare
safer while reducing costs. The Company operates in two
segments, McKesson Distribution Solutions, and
McKesson Technology Solutions. Its Revenue is $179
billion in FY2015 that is the 11th highest revenue
generating company in the United States.
Investment Thesis:
I recommend a "BUY” with a target price of $248.87. The
company is a leader in the healthcare sector, which has the
better market scale and efficient service to deliver better
pricing and convenience to its customers. It also has robust
and stable cash flows with approximately 8-10%FCF yields.
The company's revenue growth, impressive ROE, good
cash flow generated from operations, notable EPS growth
and growth in net income. It is a big player in one of the
most defensive industries in the market. The Technology
Solutions division will contribute more to its revenues in
coming years. Besides, The Department of Health and
Human Services has authorized a budget for the fiscal year
2015 of $1.020 trillion and past five years budget is in an
increasing trend. The government policy is a big positive
factor for the healthcare sector especially the Patient
Protection and Affordable Care Act (PPACA) Also,
McKesson opens the market outside the U.S in recent years,
and there is an obvious revenue boost from the
international market.
Risks:
• Reform and regulation in health care industry
• Increasing Competition
• Proprietary protections
• Customer defection
• Foreign currency fluctuations
Opportunities
• Aging Baby Boomers
• International market
• Government policy: Affordable Care Act
• Strategic M&A
SIM
Equity
Research
Report
Analyst:
Simon
Wu
November
8,
2015
614-‐4461480
wu.1681@osu.edu
McKesson
Corp
(NYSE:
MCK)
Sector：
Healthcare
Recommendation:
Buy
Current
Price:
$183.75
Target
Price:
$248.87
Upside
Potential:
32.5%
Key
Statistics
Market
Cap:
42.28
B
Shares
Outstanding:
230.11
M
Dividend
Yield:
0.57%
52
week
range:
$160.10
-‐
$243.61
Beta:
0.84
P/E:
24.04
P/S:
0.23
P/B:
4.87
EV/EBITDA:
10.99
3.
3
Company
Overview
McKesson Corporation is an American industry- leading company distributing
pharmaceuticals at a retail sale level and providing medical supplies, healthcare information
technologies and care management tool to the healthcare industry in the United States and
internationally. McKesson currently headquartered in San Francisco, CA and has 76,000+
employees. McKesson founded in 1833 and went public in 1994 with sticker "MCK" traded
in NYSE and now become NASDAQ-100 index and S&P500 index component.
Business
segments
The company operates in two main segments, McKesson Distribution Solutions, and
McKesson Technology Solutions in US and Internationally.
Distribution
Solutions
Segment:
Distribution solution segment is a major part of McKesson that consists of the businesses
including North America pharmaceutical distribution and services, International
pharmaceutical distribution and services and Medical-Surgical distribution and services.
The distribution solution generates 98.3% of total revenue in Figure A above that is the
overwhelming major revenue of McKesson. This business segment supplies pharmaceuticals
and other medical products to following primary customer channels:
• National retail pharmacies
• Independent retail pharmacies
• Institutional healthcare providers such as hospitals, clinics, and alternate site
organizations
Also, Medical-Surgical distribution and services is another significant segment of McKesson
because it generates about more than double of the margins that traditional distribution
services. The Medical-Surgical Solutions segment supplies equipment, logistics, and other
services to healthcare providers includes physicians' offices, surgery centers, clinics, and
long-term care facilities.
Technology
Solutions
Segment:
0
50
100
150
2011
2012
2013
2014
2015
Billion
Figure
A:Revenue
segment
by
Geography
US
Internadonal
4.
4
Technology Solutions segment provides a wide range of software and IT services for
healthcare organizations including hospitals, physician offices, homecare providers, and
pharmacies to improve quality and patient safety, reduce the cost and manage resources and
revenue stream.
Market
outlook
Leading positions in health care distribution and technology [1]
• No. 1 in pharmaceutical distribution in U.S. and Canada
• No. 1 in medical-surgical distribution to alternate care sites
• No. 1 in generics pharmaceutical distribution
• No. 1 in hospital automation
• No. 1 in medical-management software and services to payers
• No. 2 in specialty pharmaceutical distribution and services
• 52% of U.S. hospitals use our technology and services
• 20% of physicians use our technology and services
• 1/3 of all pharmaceuticals used each day in North America delivered by McKesson
• 4th largest pharmacy network: 2,900 Health Mart® retail pharmacy franchisees
Market
share:
(source:
Bloomberg)
Cardinal
Health
24%
Amerisourc
eBergen
31%
McKesson
45%
FIGURE1:
MARKET
SHARE
OF
PHARMACEUTICAL
DISTIBUTION
Cardinal
Health
30%
Henry
Schein
26%
McKesson
15%
PaUern
Cos
4%
Owens&
Minor
25%
FIGURE2:MARKET
SHARE
OF
MEDICAL
DISTIBUTION
UnitedHealth-‐
OptumInsight
55%
McKesson
32%
Tenet
Healthcare
-‐
Conifer
13%
FIGURE3:
MARKET
SHARE
OF
IT
BUSINESS
5.
5
Competitive
analysis
McKesson's competitive advantage largely relies on the fact that it, along with Cardinal
Health and AmerisourceBergen, oligopolies the wholesale pharmaceutical distribution market,
which creates a high barrier for new competitors to enter the market.
Also, McKesson may gain positive impacts from recent health-care reform. For example, as
the number of newly insured patients rises, McKesson will have more potential customers for
its generic drugs, which tend to produce higher profit margins than brand-name drugs
produced by Pfizer and Merck [2].
Information technology not only affects how individual activities are performed but, through
new information flows, it is also greatly enhancing a company's ability to exploit linkages
between activities, both within and outside the company. The technology is creating new
linkages between activities, and companies can now coordinate their actions more closely
with those of their buyers and suppliers. For example, McKesson, the nation's largest drug
distributor, provides its drugstore customers with terminals. The company makes it so easy
for clients to order, receive, and prepare invoices that the customers, in return, are willing to
place larger orders. At the same time, McKesson has streamlined its order processing [3].
Also, information technology segment has a highly expected growth rate.
• Competitors:
The two major competitors are AmerisourceBergen and Cardinal Health.
AmerisourceBergen is focused on pharmaceutical distribution as its major business.
However, AmerisourceBergen is not involved in the healthcare IT business, which might
give McKesson an advantage as the healthcare IT market grows and possibly becomes
more consolidated. AmerisourceBergen is more considered as a "pure" distribution player
in the market, which has a minimal diversification in the industry.
While McKesson and Cardinal Health compete with each other in medical and surgical
manufacturing, and other segments mainly competitors in Healthcare Information
Technologies include: Owens & Minor (OMI) and Henry Schein (HSIC) in the
manufacturing segment and Cerner (CERN), Eclipsys (ECLP), Allscripts Healthcare
Solutions (MDRX), and Computer Programs and Systems (CPSI) [4].
Strategic
M&A
McKesson’s strategically thinking help itself better stand among the industry. McKesson has
many successful acquisitions in the U.S and globally which gain more market than main
competitor domestically and internationally.
• McKesson integrates European pharmaceutical wholesaler and retail Celesio with $29
billion annual sales
• McKesson Announces Agreement to Purchase the Pharmaceutical Distribution
Division of UDG Healthcare PLC September 18, 2015
McKesson acquires the pharmaceutical distribution division of UDG Healthcare plc
for €408 million in cash. The acquisition will add a leader in pharmaceutical
6.
6
distribution across the Republic of Ireland and Northern Ireland to McKesson's
European business. [5]
Stocks
repurchase
MCK buy back $340 million of its common stock last fiscal year, and announce another $500
million common stock. The company repurchase a large amount of shares might mean the
price is undervalued.
Recent
news
1. Nearly 500 Organizations License InterQual in Six-Month Period November 04, 2015
370 providers and 98 managed care organizations chose InterQual for evidence-based
clinical criteria and medical review automation in first six months of 2015.
Also, the strong demand for InterQual®
Criteria reflects the market’s growing need for
technology that supports value-based care initiatives. [6]
2. McKesson Launches Chronic Care Management Services November 04, 2015
McKesson Business Performance Services (McKesson) has contracted with Sanctus
Healthcare, a California practice management firm supporting independent private practice
physicians with the delivery of chronic care management services. The initiative is designed
to strengthen the continuity of care for chronically ill patients while providing a low-risk
bridge for physicians seeking to transition from fee-for-service to value-based reimbursement.
[7]
3. McKesson to Expand Distribution Agreement with Albertsons September 15, 2015
Expanded relationship to ensure highest levels of service for Albertsons' pharmacy
customers
• McKesson to assume responsibility for the sourcing and distribution of generic and
brand pharmaceuticals for nearly 1,700 pharmacies across the Albertsons' 33-state
operating area
• Albertsons to benefit from the scale and strength of McKesson's proprietary
OneStop® generics program and efficiency of McKesson's daily direct-to-store
service model for pharmaceutical products
• Distribution agreement extends through April 2021 [8]
7.
7
Investment
thesis
Economic
analysis
• Demographic
trends
One
of
the
most
influential
macroeconomic
indicators
for
Healthcare
sector
is
the
aging
population.
This
group
of
the
population
provides
the
largest
demand
for
pharmaceutics
and
medical
products.
Through
Figure
4,
the
trend
of
65+
is
increasing
and
will
continuously
grow
by
national
projection.
The
population
of
age
65
and
older
is
more
than
any
other
time
throughout
the
U.S.
history.
Also,
according
to
2014
National
Projection
of
U.S
Census
Bureau,
the
population
of
65
and
older
(currently
46
million)
will
increase
to
88
million
by2060,
which
means
the
demand
for
healthcare
product
will
keep
the
increase
in
next
several
decades.
• Public
Policy:
As a player in the healthcare industry, McKesson is highly influenced by
government’s healthcare policy. The enactment of Medicaid and Medicare influence
the drug’s price, and quantity demanded of medical and healthcare related products
and services which have a significant effect on McKesson's pharmaceutical
distribution business because it covers approximately 20% of the US population.
Uninsured rate decreases from 13.3% in 2013 10.4% of people were without health
insurance during 2014 by The U.S. Census Bureau.
• Spending
Trends:
Health spending is expected to grow but at a relatively low rate. Factors contributing
to the growth include expanded health care coverage, increased insurance costs, and
prescription drug spending.
1. Health spending as % of GDP increase: Healthcare spending in June 2015 was 18.1% of
the GDP, up from 17.7% in July 2014.
2. Spending on hospital care: Spending on hospital care increased from 5.5% in July 2014
to 6.2% in July 2015, representing $1.05 trillion in total health expenditure.
3. Prescription drug spending: Prescription drug spending grew from 9.3% in May 2015 to
9.7%, or $337 billion, of total health spending in July 2015. [9]
4. The 2016 budget of Department of Health and Human Services increased.
12.00%
13.00%
14.00%
15.00%
36
38
40
42
44
46
2010
2011
2012
2013
2014
百万
Figure
4:
US
65+
Populadon
Trends
US
Populadon
Age
65+
Percentage
of
65+
populadon
8.
8
Financial
analysis
Income
Statement
Analysis
Figure 5 of Consensus Revenue and Earnings Estimates
According to Appendix 1 and Figure 5 above, MCK has a tremendous revenue increase from
$137.4 billion to $179 billion in FY 2015, mostly due to the sales of the international market.
The projected sales growth rate for the next three years are 5%, 8%, and 7% respectively,
which is similar to the consensus estimates. The projected estimated Earnings per Share are
$7, $8, and $9 for the next three years, which are slightly lower than the consensus.
The Revenue Growth trend is below the levels of the pharmaceutical industry but above the
sector. The growth of the McKesson’s International segment is key for the company. The
revenue of international segment contributed more and boosted in last fiscal year. So in the
next three years, the project revenue growth rate of the international pharmaceutical
distribution segments could slightly higher growth rate than consensus estimates due to
improved global economy and business expansion in Europe and Asian soon.
Tax rate is relative high among industry but it is on a downside because foreign countries that
contribute lower income tax rates than US market.
Profitability
Analysis
Figure 6 (source: http://csimarket.com)
Fiscal Year 2011 2012 2013 2014 2015
ROA 3.89% 4.24% 3.85% 2.43% 2.86%
ROE 16.65% 20.54% 18.93% 14.76% 19.29%
Gross Margin 5.33% 5.35% 5.70% 6.04% 6.37%
EBITDA Margin 2.1% 2.22% 2.25% 2.25% 2.26%
Operating Margin 1.62% 1.75% 1.89% 1.72% 1.66%
Both Return on Asset and Return on
Equity in 2015 fiscal year improved
compare to the previous year, due to
annual net income growth. ROA is
relatively lower than industry.
However, ROE remains on high level
among industry, healthcare sector
and whole market. Gross Profit and
EBITDA margin beat the history due
to McKesson’s Revenue increased to
179,045 $ millions by 30.11 %.
Year
FY2015
FY
2016
forward
estimate
FY
2017
forward
estimate
FY
2018forward
estimate
Revenue
179.05
B
181.00
B
195.86
B
212.21
B
%
Growth
YOY
30%
4%
8.2%
8.3%
Shares
Outstanding
232.4
M
EPS
7.4
9.3
12.1
14.28
EPS
growth
YOY
38%
26%
30%
18%
MCK
Industry
Sector
S&P500
0%
50%
ROA
ROE
Gross
Margin
Figure
7:
2016
FY
2Q
Probability
Comparison
MCK
Industry
Sector
S&P500
9.
9
Efficiency
Analysis
According to Figure 8,
MCK’S inventory
turnover slightly below
its industry but higher
than sector and market.
Asset turnover and
Receivable turnover are
above the benchmarks.
Liquidity
Analysis
McKesson Corp's quick ratio
improved from 2013 to 2015 and
current ratio improved from 2013 to
2014 but then slightly deteriorated
from 2014 to 2015. However, both of
them stay on the average level and
stable.
Fiscal
2016
2nd
Quarter
Result
[10]
McKesson delivered solid results during the first two quarters of 2016 fiscal year. In addition
to the strong operating performance across our businesses in the second quarter, the company
repurchased approximately 2.5 million shares totaling nearly $500 million, acquired the UK
pharmacy operations of Sainsbury’s and the pharmaceutical distribution business of United
Drug Group in Ireland.
Highlights
• The revenue up 10% to 48.8 million.
• Second-quarter Adjusted Earnings per diluted share of $3.31, up 19%.
• Consolidated results include a pre-tax gain of $51 million
• Board of Directors authorized a new $2 billion share repurchase program
• Fiscal 2016 Outlook: Adjusted Earnings per diluted share of $12.50 to $13.00
0.68
0.61
0.58
0.62
0.63
1.19
1.09
1.08
1.1
1.09
2011
2012
2013
2014
2015
FIGURE
9:LIQUIDITY
RATIO
COMPARISON
SOURCE:
CSIMARKET.COM
Quick
Rado
Current
Rado
MCK
Industry
Sector
S&P500
0
5
10
15
20
25
Inventory
Turnover
Asset
Turnover
A/R
Turnover
Figure
8:
Efficiency
Rado
Comparison
MCK
Industry
Sector
S&P500
10.
10
Segment results
• Distribution Solutions revenues were $48 billion for the quarter, up 11% on a reported
basis and up 14% on a constant currency basis. North America pharmaceutical
distribution and services revenues were $40.6 billion for the quarter, up 16% on a
reported basis and 17% on a constant currency basis. North America revenue growth
primarily reflects market growth and our mix of business. International
pharmaceutical distribution and services revenues were $5.9 billion for the quarter,
down 13% on a reported basis and up 2% on a constant currency basis. Medical-
Surgical distribution and services second-quarter revenues were up 3% for the quarter,
driven by market growth.
• Technology Solutions second-quarter revenues were $721 million, down 6%
compared to the prior year, primarily driven by the completed sale of our nurse triage
business in our first quarter and by the anticipated year-over-year decline in our
hospital software business, partially offset by growth in our other technology
businesses.
Valuation
Peer
comparison
Figure
10:
Industry
multiples
comparison
(Yahoo
Finance)
Valuation
Measures
MCK
CAH
ABC
Industry
Average
Market Cap: 42.33B 28.94B 21.00B 28.40B
Qtrly Rev
Growth (yoy)
10% 17% 12% 7%
Revenue
(ttm)
187.72B 106.52B 135.96B 135.96B
EBITDA
(ttm)
4.21B 2.84B 1.61B 2.84B
Net Income
(ttm)
2.09B 1.33B -134.89M
EPS (ttm) 7.64 3.99 -0.62 3.99
P/E (ttm) 20.74 20.36 N/A 23.8
P/S (ttm) 0.24 0.26 0.17 5.52
P/B (ttm) 5.05 4.22 13.6 5.77
P/CF (ttm) 13.22 4.22 6.48 18.93
EV/EBITDA
(ttm)
12.13 10.43 71.39 27.71
MCK=
McKesson
CAH=
Cardinal
Health,
Inc.
ABC=
AmerisourceBergen
Industry=
Drugs
Wholesale
11.
11
Multiples
Valuation
Figure
11:
MCK’s
historical
multiples
comparison
(Bloomberg)
Company
Valuation:
The company traded slightly higher than historical median however, it
is reasonable because healthcare has the high-expected growth and the potential to grow.
Industry comparison: McKesson’s market cap and revenues are highly above all the main
competitors and industry average which means the company is able to gain the major market
share. Also, McKesson keeps a good growth rate of revenue and net income, which higher
than industry average. According to figure x, McKesson trades below the industry average
multiples includes P/E, P/B, P/S, and P/EBITDA, which indicates MCK is likely to be
undervalued.
Sector
valuation：Based on figure 12 and 13 below，current health care Sector multiples
are trading slightly above its historical median but they are still in understandable range,
however, it is the whole sector is outperformed and “hot” which means it is fairly valued.
Figure
12:
Sector
historical
multiples
(Bloomberg)
Figure
13
Sector
relative
toS&P500
(Bloomberg)
DCF
Model:
Appendix 2 illustrates the DCF valuation for McKesson Corp that provide
implied value per share of MCK is $269.74 with an upside of 46.8%, which slightly higher
than the multiple valuation estimation. The forecasted terminal FCF growth rate is 6% and
the terminal discount rate is 9.75% that reflects McKesson’s mature market dominance and
optimistic international market expansion. The government policy and demographic
condition will give healthcare opportunity for growth. The forecast estimates Capex as 0.3%
Absolute
basis
High
Low
Median
Current
P/E
28.94
7.63
17.09
20.74
P/B
6.98
2.25
3.28
5.05
P/S
0.32
0.09
0.18
0.24
P/EBITDA
13.88
5.1
9.25
10.75
Sector
High
Low
Median
Current
P/E
23.95
9.94
15.5
21.32
P/B
3.97
1.91
2.97
3.57
P/S
1.92
0.97
1.45
1.70
P/EBITDA
14.21
6.48
9.62
12.72
Relative
to
S&P500
High
Low
Median
Current
P/E
1.33
0.50
0.99
1.76
P/B
1.59
1.06
1.31
1.42
P/S
1.71
0.89
1.10
1.01
P/EBITDA
1.75
0.744
1.76
1.35
12.
12
and Operating margin as 1%, which based on company’s historical statistics. But the
forecasted Tax Rate is lower due to its significant increasing revenue in International market.
Sensitivity
analysis:
Discount
Rate
FCF
Growth
Rate
9.25%
9.5%
9.75%
10%
10.25%
5%
256.01
242.02
229.50
218.22
208.02
5.5%
279.44
262.34
247.25
233.83
221.81
6%
310.08
288.47
269.74
253.33
238.85
6.5%
351.86
323.31
299.14
278.41
260.44
7%
412.21
372.09
339.24
311.85
288.66
Figure
14:
Sensitivity
Table
Multiple Valuation of McKesson’s Target Price
Figure 15: Target Price
Target
Price:
Final Target price is weighting 75% of implied value from DCF model and 25% from
average of multiple target prices.
75% * $269.74 +25% * $186.26 = $ 248.87
Risks:
Reform and regulation in health care industry: Many of our products and services are
intended to function within the structure of the healthcare financing and reimbursement
system currently being used in the United States. In recent years, the healthcare industry in
the United States has changed significantly in an effort to reduce costs. These changes have
included cuts in Medicare and Medicaid reimbursement levels, increases in the use of
managed care, consolidation of pharmaceutical and medical-surgical supply distributors and
the development of large, sophisticated purchasing groups. We expect the healthcare industry
in the United States to continue to change and for healthcare delivery models to evolve in the
future.
Increasing Competition: Distribution Solutions segment faces strong competition, both in
price and service, from international, national, regional and local full-line, short-line and
specialty wholesalers, service merchandisers, self-warehousing chains, manufacturers
Absolute
Valuation
Current
Target
Multiple
Target/Current
Expected
EPS
Target
Price
P/E
20.74
15.15
0.73
12.72
192.7
P/B
5.05
4.03
0.80
155.6
P/S
0.24
0.23
0.95
184.76
P/EBITADA
10.75
11.68
1.09
211.99
Average
186.26
DCF
269.74
13.
13
engaged in direct distribution, third-party logistics companies and large payer organizations.
In addition, this segment faces competition from various other service providers and from
pharmaceutical and other healthcare manufacturers as well as other potential customers of the
segment, which may from time-to-time decide to develop, for their own internal needs,
supply management capabilities that would otherwise be provided by the segment. Price,
quality of service, and convenience to the customer are generally the principal competitive
elements in this segment. Technology Solutions segment experiences substantial competition
from many firms, including other software services firms, consulting firms, shared service
vendors, certain hospitals and hospital groups, payers, care management organizations,
hardware vendors and internet-based companies with technology applicable to the healthcare
industry. Competition varies in size from small to large companies, in geographical coverage
and in scope and breadth of products and services offered. These competitive pressures could
have a material adverse impact on our results of operations.
Volatility of global capital markets: Volatility and disruption in the global capital and credit
markets, including the bankruptcy or restructuring of certain financial institutions, reduced
lending activity by other financial institutions, decreased liquidity and increased costs in the
commercial paper market and the reduced market for securitizations, may adversely affect the
availability and cost of credit already arranged and the availability, terms and cost of credit in
the future, including any arrangements to renew or replace our current credit or financing
arrangements. This risk may increase company’s costs of borrowing.
Proprietary protections: We rely on a combination of trade secret, patent, copyright and
trademark laws, nondisclosure and other contractual provisions and technical measures to
protect our proprietary rights in our products and solutions. There can be no assurance that
these protections will be adequate or that our competitors will not independently develop
products or solutions that are equivalent or superior to ours. These litigation expenses,
damage payments or costs of developing replacement products or technology could have a
material adverse impact on our results of operations.
Customer defection: Future advances in the healthcare information systems industry could
lead to new technologies, products or services that are competitive with the technology
products and services offered by our various businesses. To remain competitive in the
evolving healthcare information systems marketplace, our technology businesses must also
develop new products on a timely basis. The failure to develop competitive products and to
introduce new products on a timely basis could curtail the ability of our technology
businesses to attract and retain customers, and thereby could have a material adverse impact
on our results of operations.
Foreign currency fluctuations: As increasing revenues are generated outside of the United
States, for example，the Company’s acquisition of Celesio significantly increases our
exposure to foreign currency fluctuation risks. These risks include uncertainty regarding the
Brazilian real, the British pound sterling, the Canadian dollar, the Euro, and the Norwegian
krone that could adversely impact our results of operations and capital ratios based on the
movements of the applicable foreign currency exchange rates in relation to the U.S. dollar.
Fluctuating exchange rates cause the value of items on both the assets and liabilities side of
14.
14
the balance sheet to change, which could also negatively impact our results of operations. A
depreciation of non-U.S. dollar currencies relative to the U.S. dollar could have a material
adverse impact on our results of operations. [11]
Conclusion
With the projected target price of $248.87 and 32.5% upside potential, I recommend a “BUY”
in McKesson Corp (MCK). The share price currently remains undervalued at $183.75. First,
robust financial statement and reasonable valuation indicate that MCK has further potentials.
Revenues grows strongly recently both in North America and European market.
Government’s policy and macroeconomic indicator such as increasing US aging population
both have positive effect to healthcare, which helps McKesson stand a good chance in whole
market. The strong earnings report of 2015 fiscal year also gives confidence to buy and hold
McKesson until the price moves to expected level.
McKesson (MCK)
Current Price: $183.75
Recommendation: Buy
Target Price: $248.87
Upside Potential: 32.5%
15.
15
Appendix
1
Income
Statement
MCK
FY FY FY FY FY FY FY FY
Millions 2018E 2017E 2016E 2015 2014 2013 2012 2011
Revenues 217,249.62$
203,037.03$
187,997.25$
179,045.00$
137,392.00$
122,196.00$
122,734.00$
112,084.00$
Consensus 212,214.51$
195,986.80$
181,000.00$
174,000.00$
Cost
of
Sales (203,530.32)$
(190,130.82)$
(175,867.36)$
(167,634.00)$
(129,040.00)$
(115,315.00)$
(116,167.00)$
(106,114.00)$
Gross
margin 13,719.30$
12,906.21$
12,129.89$
11,411.00$
8,352.00$
6,881.00$
6,567.00$
5,970.00$
Operating
expenses
Selling,
distribution
and
administrative
expenses (10,427.98)$
(9,745.78)$
(9,023.87)$
(7,901.00)$
(5,388.00)$
(4,110.00)$
(3,829.00)$
(3,529.00)$
Research
and
development (434.50)$
(406.07)$
(375.99)$
(392.00)$
(457.00)$
(433.00)$
(440.00)$
(407.00)$
Claim
and
litigation
charges (1,485.50)$
(1,371.91)$
(1,267.00)$
(150.00)$
(68.00)$
(72.00)$
(149.00)$
(213.00)$
Gain
on
business
combination -‐$
-‐$
-‐$
-‐$
-‐$
81.00$
-‐$
-‐$
Total
Operating
Expenses -‐$
(11,523.76)$
(10,666.86)$
(8,443.00)$
(5,913.00)$
(4,534.00)$
(4,418.00)$
(4,149.00)$
Operating
Income 13,719.30$
1,382.45$
1,463.03$
2,968.00$
2,439.00$
2,347.00$
2,149.00$
1,821.00$
Other
Income,
Net 63.06$
63.04$
63.02$
63.00$
32.00$
34.00$
21.00$
36.00$
Impairment
of
an
Equity
Investment -‐$
-‐$
-‐$
-‐$
-‐$
(191.00)$
-‐$
-‐$
Interest
Expense (371.76)$
(372.51)$
(373.25)$
(374.00)$
(300.00)$
(240.00)$
(251.00)$
(222.00)$
Income
from
Continuing
Operations
Before
Income
Taxes 2,782.48$
2,740.01$
2,698.18$
2,657.00$
2,171.00$
1,950.00$
1,919.00$
1,635.00$
Income
Tax
Expense (862.57)$
(876.80)$
(809.46)$
(815.00)$
(757.00)$
(587.00)$
(516.00)$
(505.00)$
Income
from
Continuing
Operations 1,919.91$
1,863.20$
1,888.73$
1,842.00$
1,414.00$
1,363.00$
1,403.00$
1,130.00$
Loss
from
Discontinued
Operations,
Net
of
Tax (299.00)$
(156.00)$
(25.00)$
-‐$
-‐$
Discontinued
Operation
–
gain
on
sale,
net
of
tax -‐$
-‐$
-‐$
-‐$
72.00$
Net
Income 1,589.75$
1,574.01$
1,558.43$
1,543.00$
1,258.00$
1,338.00$
1,403.00$
1,202.00$
Net
Loss
(Income)
Attributable
to
Noncontrolling
Interests -‐$
-‐$
-‐$
(67.00)$
5.00$
-‐$
-‐$
-‐$
Net
Income
Attributable
to
McKesson
Corporation 1,589.75$
1,574.01$
1,558.43$
1,476.00$
1,263.00$
1,338.00$
1,403.00$
1,202.00$
Earnings
(Loss)
Per
Common
Share
Diluted
Continuing
Operations 7.54$
6.08$
5.69$
5.59$
4.29$
Discontinued
Operations (1.27)$
(0.67)$
(0.10)$
-‐$
0.28$
Total 6.51$
6.45$
6.38$
6.27$
5.41$
5.59$
5.59$
4.57$
Consensus 16.30$
14.51$
12.63$
Basic
Continuing
Operations 7.66$
6.19$
5.81$
5.70$
4.37$
Discontinued
Operations (1.29)$
(0.68)$
0.10$
-‐$
0.28$
Total 6.37$
5.51$
5.91$
5.70$
4.65$
Weighted
Average
Common
Shares
Diluted
244 244 244 235 233 239 251 263
Basic 240 240 240 232 229 235 246 258
Tax
Rate 31% 32% 30% 31% 35% 30% 27% 31%
D&A 920.00$
945.00$
962.00$
1,017.00$
735.00$
581.00$
551.00$
496.00$
D&A % of Sales 0.42% 0.47% 0.51% 0.57% 0.53% 0.48% 0.45% 0.44%
CapEx -‐595 -‐580 -‐560 -‐545 -‐419 -‐400 -‐403 -‐388
% of Sales -‐0.27% -‐0.29% -‐0.30% -‐0.30% -‐0.30% -‐0.33% -‐0.33% -‐0.35%
Receivables (1,368.67)$
(1,319.74)$
(1,278.38)$
(2,821.00)$
(868.00)$
318.00$
(770.00)$
(673.00)$
% of Sales -‐0.63% -‐0.65% -‐0.68% -‐1.58% -‐0.63% 0.26% -‐0.63% -‐0.60%
Inventory (1,738.00)$
(1,583.69)$
(1,597.98)$
(2,144.00)$
(1,182.00)$
(60.00)$
(878.00)$
367.00$
% of Sales -‐0.80% -‐0.78% -‐0.85% -‐1.20% -‐0.86% -‐0.05% -‐0.72% 0.33%
Payables 3,823.59$
3,451.63$
3,383.95$
4,718.00$
2,412.00$
(125.00)$
2,027.00$
533.00$
% of Sales 1.76% 1.70% 1.80% 2.64% 1.76% -‐0.10% 1.65% 0.48%
Change in WC 575.20$
94.75$
(3,422.69)$
5,221.00$
4,845.00$
(4,058.00)$
2,836.00$
Revenue
Growth%
YoY 7% 8% 5% 30.32% 12.44% -‐0.44% 9.50%
Growth
Profit% 6.30% 6.40% 6.30%
Operating
Expenses
as
%
of
Sales
Selling,
distribution
and
administrative
expenses -‐5% -‐5% -‐5% -‐4.41% -‐3.92% -‐3.36% -‐3.12%
Research
and
development -‐0.20% -‐0.20% -‐0.20% -‐0.22% -‐0.33% -‐0.35% -‐0.36%
Claim
and
litigation
charges -‐0.70% -‐0.70% -‐0.70% -‐0.08% -‐0.05% -‐0.06% -‐0.12%
Gain
on
business
combination 0% 0% 0% 0.00% 0.00% 0.07% 0.00%
Operating
Income 1.76% 1.76% 1.76% 1.66% 1.78% 1.92% 1.75%
Other
Income,
Net 0.03% 0.03% 0.03% 0.04% 0.02% 0.03% 0.02%
Impairment
of
an
Equity
Investment 0% 0% 0% 0.00% 0.00% -‐0.16% 0.00%
Interest
Expense -‐0.20% -‐0.20% -‐0.20% -‐0.21% -‐0.22% -‐0.20% -‐0.20%
Income
from
Continuing
Operations
Before
Income
Taxes 1.55% 1.55% 1.55% 1.48% 1.58% 1.60% 1.56%
Net
Income
%
as
Sales 1% 1% 1% 0.86% 0.92% 1.09% 1.14%
