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Trade-Ideas: McKesson (MCK) Is Today's "Water-Logged And Getting Wetter" Stock

Stock quotes in this article: MCK

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified McKesson ( MCK) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified McKesson as such a stock due to the following factors:

  • MCK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $148.9 million.
  • MCK has traded 1.1 million shares today.
  • MCK traded in a range 309.8% of the normal price range with a price range of $6.48.
  • MCK traded below its daily resistance level (quality: 3 days, meaning that the stock is crossing a resistance level set by the last 3 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on MCK:

McKesson Corporation, together with its subsidiaries, delivers pharmaceuticals, medical supplies, and health care information technologies to the healthcare industry primarily in the United States. It operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions. The stock currently has a dividend yield of 0.6%. MCK has a PE ratio of 26.9. Currently there are 10 analysts that rate McKesson a buy, 1 analyst rates it a sell, and 3 rate it a hold.

The average volume for McKesson has been 1.7 million shares per day over the past 30 days. McKesson has a market cap of $36.8 billion and is part of the services sector and wholesale industry. The stock has a beta of 1.08 and a short float of 1.1% with 2.70 days to cover. Shares are down 0.4% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates McKesson as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • MCK's revenue growth has slightly outpaced the industry average of 9.3%. Since the same quarter one year prior, revenues rose by 10.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 64.09% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MCK should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • MCKESSON CORP has improved earnings per share by 7.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MCKESSON CORP reported lower earnings of $5.58 versus $5.60 in the prior year. This year, the market expects an improvement in earnings ($8.62 versus $5.58).
  • The debt-to-equity ratio is somewhat low, currently at 0.61, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that MCK's debt-to-equity ratio is low, the quick ratio, which is currently 0.62, displays a potential problem in covering short-term cash needs.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Health Care Providers & Services industry and the overall market, MCKESSON CORP's return on equity exceeds that of both the industry average and the S&P 500.

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