Drug distributor McKesson (MCK) is slated to unveil results for the fourth quarter of fiscal 2017 after the market close on Thursday and Wall Street's focus will be more on the guidance that the company will put forth.
The fourth quarter is "less relevant than the guidance McKesson will set," said Credit Suisse analyst Robert Willoughby in a phone interview.
Raymond James analyst John W. Ransom made a similar comment, telling TheStreet: "It's all about the [fiscal year 2018] guidance."
For fiscal year 2018, analysts have forecast, on average, adjusted earnings per share of $11.45, according to FactSet Research Systems.
"Our guess is if it's above $11, the stock is going to be OK," Ransom said.
Willoughby, for his part, said he wouldn't be surprised to see a relief rally in McKesson's shares "if there's no evidence of a broader disaster than the one that hit Cardinal Health."
On April 18, Cardinal Health updated its guidance for fiscal 2017, saying it expects adjusted EPS for the year ending June 30, 2017 to come in at the bottom of the previous guidance range of $5.35 to $5.50, citing generic deflation, which Cardinal expects to be in the low-double digits for the full fiscal year.
If San Francisco-based McKesson provides guidance that's within the ballpark of consensus estimates and there are "no new disasters or threats to the model," it would make the drug distribution sector "more broadly investable," said Willoughby.
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For the fourth quarter of fiscal 2017, analysts expect, on average, adjusted EPS of $3 on revenue of $49.48 billion, according to FactSet.
Raymond James' Ransom said that for a large, well-followed company, there's an "unusually high level of uncertainty" going into McKesson's earnings announcement.
Besides generic drug pricing and deflation, the uncertainty stems from the proposed merger of Walgreens (WBA) and Rite Aid (RAD) , as well as the impact of the Change Healthcare transaction, Ransom said.
Rite Aid has a distribution pact with McKesson. Walgreens, for its part, has a distribution agreement with AmerisourceBergen (ABC) .
Rite Aid agreed to be acquired by Walgreens for about $9.7 billion in 2015. The deal is under antitrust scrutiny, and Walgreens and Rite Aid said earlier this month that they have given the Federal Trade Commission until July 7 to reach a decision on their pending transaction.
Meanwhile, McKesson in March completed the merger of the majority of its technology solutions business with private equity-backed Change Healthcare Holdings, creating a healthcare information technology company.The new firm, which takes the Change Healthcare name, is 70% owned by McKesson, with the remaining 30% owned by Change Healthcare shareholders including Blackstone Group BX and Hellman & Friedman.
Shares of McKesson closed at $142.04 on Wednesday, down nearly 2% amid a broader decline in the stock market.
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