E Why McKesson Is A Quintessential Growth At A Reasonable Price Dividend Stock

Despite the coronavirus crisis, the S&P 500 has rallied 16% in the last 12 months and thus it has climbed to a new all-time high. As a result, it has become challenging for investors to identify cheaply valued stocks with promising growth prospects. McKesson (MCK) is a bright exception, as it is cheaply valued and has decent growth prospects ahead. It is also one of the top 10 holdings of Glenview Capital, which is well known for its focus on “Growth at a Reasonable Price” (GARP) investing strategy. The investors who follow this strategy should certainly put McKesson on their radar.

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Business overview

McKesson is the largest pharmaceutical distributor in the U.S. and provides pharmaceuticals and medical supplies both in the U.S. and internationally. The company has access to approximately one-third of all the U.S. pharmacies and has more than 275,000 stock-keeping units (SKUs) of branded and private label medical supplies. It has generated revenues of $234 billion in the last 12 months and thus it is ranked #8 on the Fortune 500 list.

The healthcare sector, which has always proved resilient to recessions, has proved resilient once again during the ongoing recession, which has been caused by the coronavirus crisis. McKesson is not an exception, as it offers products that are essential to consumers and hence the latter do not curtail their consumption of these products even under the worst economic conditions.

In the most recent quarter, McKesson grew its revenue 6% thanks to growth in the U.S. pharmaceutical business, which resulted primarily from market growth and increased volumes from retail national account customers. The company also reduced its share count by 11% over the prior year’s quarter while its tax rate decreased. As a result, McKesson grew its adjusted earnings per share 33%, from $3.60 to $4.80.

Even better, management expects the strong business momentum to remain in place for the foreseeable future. It thus raised its guidance for the earnings per share in fiscal 2021, which ends in March-2021, from $14.70-$15.50 to $16.00-$16.50. At the mid-point, this is a 7.6% increase in the expected earnings per share, which proves that the company is enjoying strong momentum despite the pandemic. It is also impressive that McKesson has exceeded the analysts’ earnings-per-share estimates for 10 consecutive quarters.

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