Why McKesson (MCK) Stock Is Gaining After-Hours Monday

NEW YORK (TheStreet) -- McKesson (MCK) was gaining 2.5% to $178.50 in after-hours trading Monday after beating analysts' estimates for earnings and revenue in the fiscal fourth quarter.

For the fourth quarter McKesson reported earnings of $2.55 a share, beating the Capital IQ Consensus Estimate of $2.40 a share by 15 cents. Revenue grew 24.4% from the year-ago quarter to $38.1 billion. Analysts expected revenue of $35.9 billion for the quarter.

"I am pleased with our fourth-quarter results led by solid execution across the Distribution Solutions and Technology Solutions segments," chairman and CEO John H. Hammergren said in a press release. "For the full year, we had strong growth in adjusted earnings, up 31% from the prior year, and a record year for operating cash flow generated by the business. These results were driven primarily by outstanding performance in the Distribution Solutions segment and disciplined working capital management across the company."

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TheStreet Ratings team rates MCKESSON CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate MCKESSON CORP (MCK) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.8%. Since the same quarter one year prior, revenues rose by 10.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 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 0.60, displays a potential problem in covering short-term cash needs.
  • Compared to its closing price of one year ago, MCK's share price has jumped by 43.58%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • MCKESSON CORP's earnings per share declined by 47.2% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, MCKESSON CORP increased its bottom line by earning $5.61 versus $5.60 in the prior year. This year, the market expects an improvement in earnings ($8.19 versus $5.61).
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. 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.
  • You can view the full analysis from the report here: MCK Ratings Report

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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.

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