McKesson MCK has started 2025 on a positive note, with the stock climbing 4% so far in January as investors remain optimistic about the company’s performance in 2025. MCK’s growth this year will be driven by its strategic focus on oncology and biopharma services, supported by the expansion of The US Oncology Network and the launch of InspiroGene for cell and gene therapies.

Rising demand for specialty pharmaceuticals, including GLP-1 medications, should further improve revenues. Investments in Prescription Technology Solutions (RxTS), such as automated affordability tools and prior authorization innovations, position McKesson for sustained growth. Strategic divestitures, like the sale of Rexall and Well.ca, are expected to streamline operations and focus resources on high-margin areas.

However, MCK faces regulatory uncertainties, inflationary pressures and potential supply-chain disruptions in the evolving global healthcare landscape. Increasing competition and shifting healthcare policies could also impact margins and market share. Meanwhile, the company must ensure seamless integration of acquisitions, maintain operational efficiency and effectively execute cost-saving initiatives in segments like Medical-Surgical Solutions.

MCK and the Medical – Dental Supplies industry have given almost similar returns so far this year. The industry has also outperformed the broader medical sector and the S&P 500 Index in that period, implying rising growth potential across the industry. MCK’s industry peers, like Cardinal Health CAH and Cencora COR, have also registered strong growth year to date.

Year-to-Date Price Comparison of MCK

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MCK's Golden Crossover Support

MCK stock is currently trading above its 50-day and 200-day moving averages. The stock witnessed a golden crossover on Dec. 9, 2024, and since then, the 50-day moving average has been ahead of the 200-day moving average. This can be good news for MCK investors, signaling “support” for a continued uptrend.

MCK Above the 50 and 200-Day SMA

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McKesson: Positioned for Growth and Resilience

McKesson, a leading diversified healthcare services company, reported strong second-quarter fiscal 2025 results, reinforcing its robust position in the healthcare sector. The company's strategic initiatives and operational excellence are setting the stage for sustained growth across its core and emerging business segments.

McKesson’s U.S. Pharmaceutical segment posted stellar second-quarter fiscal 2025 results, with revenues soaring 23% year over year to $85.7 billion, driven by GLP-1 medications’ 47% growth and specialty product demand. Adjusted operating profit increased 11% to $902 million, aided by a new strategic partner that should add $31 billion to fiscal 2025 revenues. Key drivers include rising prescription volumes, the continued expansion of oncology services and robust specialty drug distribution. McKesson’s investments in technology and strategic partnerships, coupled with its vast distribution network, ensure sustained growth in the rapidly evolving pharmaceutical market.

McKesson’s International segment reported second-quarter revenues of $3.7 billion, up 7% year over year. Higher pharmaceutical distribution volumes in Canada primarily drove growth. The divestiture of the Rexall and Well.ca retail businesses should streamline operations, allowing McKesson to focus on its core pharmaceutical distribution and biopharma services. Going forward, growth is expected to be supported by strategic cost optimization and strong market demand in Canada, while the European business exit further enhances operational focus.

Revenues for the Medical-Surgical Solutions Segment grew 4% to $2.9 billion in the second quarter of fiscal 2025. Increased specialty pharmaceutical volumes and illness-related seasonal product demand partially offset these challenges. Looking ahead, the segment’s focus on alternate care sites and efficiency initiatives, expected to deliver $100 million in cost savings in FY25, should drive improved profitability.

In the second quarter of fiscal 2025, RxTS’ revenues grew 11% to $1.3 billion, with adjusted operating profit increasing 4% to $218 million. Key growth drivers included rising prescription volumes and increased adoption of affordability and access solutions. Automated prior authorizations and patient affordability tools, which saved patients over $2 billion in the second quarter alone, position RxTS as a leader in biopharma solutions. Future performance should be driven by expanding its technology offerings and addressing high-growth therapeutic areas like specialty drugs.

MCK is witnessing an improvement in its earnings estimate for fiscal 2025. Over the past 60 days, earnings per share improved 0.6% to $32.73, implying growth of 19.3% year over year. The sales estimate for fiscal 2025 is pegged at $358.91 billion, suggesting an improvement of more than 16% compared to fiscal 2024. Sales and EPS are anticipated to gain 9.5% and 12%, respectively, in fiscal 2026.

Favorable Estimate Revision Over 60 Days for MCK

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Favorable Factors Driving McKesson’s Success

McKesson's strategic focus on oncology, biopharma services and digital transformation stands as a major growth engine. The company has consistently leveraged its scale, operational efficiency and innovation to deliver value to stakeholders. Key drivers include:

1. Resilient U.S. Pharmaceutical Distribution Business: McKesson’s cornerstone segment capitalizes on rising prescription volumes, especially in specialty products like GLP-1 medications. These drugs, critical for managing conditions like diabetes and obesity, contributed $10.4 billion to second-quarter revenues.
2. Oncology Platform Expansion: The US Oncology Network, bolstered by recent acquisitions such as CORE Ventures and new additions like Tennessee Cancer Specialists, now spans over 3,300 providers. The introduction of InspiroGene supports the commercialization of advanced therapies, positioning McKesson as a leader in oncology services.
3. Biopharma Services Momentum: The Prescription Technology Solutions (RxTS) platform enhances medication access, affordability and adherence. Innovations like automated prior authorizations, integrated hub services and digital affordability programs contributed to strong sales growth.
4. Strong Financial Foundation: With free cash flow exceeding $1.9 billion in the second quarter and a raised share repurchase target of $3.2 billion for fiscal 2025, McKesson’s disciplined capital allocation underscores its shareholder value commitment.
5. Strategic Divestitures: The planned sale of Canadian retail businesses, Rexall and Well.ca, allows McKesson to refocus resources on its high-margin oncology and biopharma platforms.

Cheap Valuation Too

MCK stock is currently trading at a discount compared to the Medical Dental Supplies industry. Its forward 12-month P/E of 16.5X is lower than the industry’s 17.53X at this moment.

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Key Challenges Faced by MCK

Although McKesson’s strategic initiatives drive long-term growth, near-term hurdles in specific segments and operational adjustments have moderated the benefits of its overall strong performance.For the second quarter of fiscal 2025, McKesson posted strong overall results but faced several unfavorable conditions that affected its performance.

The Medical-Surgical Solutions segment reported a 4% decline in adjusted operating profit due to reduced primary care demand as market conditions normalized after COVID-19. This normalization affected both volumes and the customer mix, posing a challenge to the segment.

Rising operational costs also weighed on performance, particularly in the U.S. Pharmaceutical segment, where expenses increased to support higher distribution volumes and strategic growth initiatives. These costs partially offset gains from other areas.

Another significant factor was a $643-million charge related to the remeasurement of assets under the divestiture of Rexall and Well.ca. This charge created a non-operational drag on the company’s overall financial results. Additionally, segment-specific challenges hindered growth in certain areas. Lower biosimilar volumes with select retail accounts and seasonal fluctuations in demand for medical products further constrained progress. While these factors collectively pressured McKesson’s performance, the company continued to navigate through them while focusing on its long-term growth strategies.

Our Take: Buy MCK

McKesson's strategic focus on oncology, biopharma services and digital transformation positions it well for sustained growth in 2025 and beyond. While facing near-term challenges like operational costs and regulatory uncertainties, its robust financial performance, key investments, and competitive valuation make MCK a compelling buy for long-term investors.

Although MCK currently carries a Zacks Rank #3 (Hold), the company has encouraging Zacks Style Score of “A”. The style score reflects attractive valuation and strong growth potential, along with rising momentum. A strong momentum score may lead to a surge in stock price in the next few months.

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