McKesson MCK delivered an 18% increase in revenues ($95.3 billion) and a 16% rise in adjusted operating profit during the third quarter of fiscal 2025 despite ongoing macroeconomic challenges. The company also raised its full-year guidance. It now expects adjusted EPS to be in the range of $32.55-$32.95, suggesting 19-20% year-over-year growth, reflecting confidence in continued operational momentum.

The U.S. Pharmaceutical segment was a major contributor, benefiting from stable utilization trends, increased prescription volumes from retail national account customers, and strong specialty pharmaceutical distribution, particularly in oncology. GLP-1 medications also played a significant role, contributing revenues worth $10.9 billion (up 45% year over year). The Prescription Technology Solutions segment saw robust growth, with revenues and operating profit rising 14% and 22%, respectively. This was driven by increased demand for access and affordability solutions, including prior authorizations for GLP-1 medications and third-party logistics services.

The Medical-Surgical Solutions segment faced headwinds due to a weaker-than-expected illness season, leading to a 3% revenue decline. However, operational efficiencies and cost optimization initiatives helped drive a 4% increase in operating profit.

McKesson's biopharma and specialty services platforms continued to expand, with the acquisition of PRISM Vision strengthening its position in retina and ophthalmology. The company also reported growth in its oncology platform, with same-site visits increasing 6%.

Meanwhile, MCK has outperformed the Medical – Dental Supplies industry in the past six months. It has also outperformed the broader medical sector but underperformed the S&P 500 Index in the same period. MCK’s industry peers, such Cardinal Health CAH and Cencora COR, have also registered strong growth in the same time frame. However, a strong outperformance may lead to some correction going forward.

Year-to-Date Price Comparison of MCK

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MCK's Golden Crossover Support

MCK 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. However, the lower high on the chart raises concern about a reversal going forward.

MCK Above the 50 and 200-Day SMA

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McKesson's 2025 Outlook: Growth Drivers and Strategic Expansion

McKesson is poised for a strong performance in 2025, with multiple growth levers across its key business segments. Stable pharmaceutical utilization trends, strategic acquisitions and a continued focus on specialty pharmaceutical distribution drive the company’s momentum.

The U.S. Pharmaceutical segment remains a cornerstone of McKesson’s growth strategy. Specialty pharmaceuticals, particularly oncology drugs and GLP-1 medications, are expected to drive continued expansion. The company’s differentiated oncology platform, including the U.S. Oncology Network, has seen a steady increase in provider participation, improving access to advanced cancer care. McKesson is also strengthening its generics sourcing capabilities through its ClarusONE alliance, enhancing operational efficiency and cost competitiveness.

In the RxTS segment, McKesson is leveraging its leadership in access and affordability solutions to improve prescription adherence. The segment benefits from increased demand for prior authorization services and third-party logistics support, positioning it for continued double-digit operating profit growth. The integration of digital tools and data analytics further strengthens McKesson’s value proposition in the pharmaceutical services space.

A significant growth catalyst for McKesson is its expansion into ophthalmology and retina care, highlighted by the acquisition of PRISM Vision. This move mirrors the company’s successful oncology strategy, reinforcing its commitment to high-value specialty care markets.

The Medical-Surgical Solutions segment faces challenges due to a weaker-than-expected illness season impacting demand for vaccines and testing supplies. However, McKesson’s cost optimization initiatives are expected to mitigate these effects, driving improved operational efficiencies. The company remains focused on expanding its presence in alternate-site care, which is seeing long-term growth as healthcare shifts toward outpatient and community-based settings.

MCK is witnessing an improvement in its earnings estimate for fiscal 2025. Over the past 60 days, earnings per share improved 1 cent to $32.74, 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 12.1%, respectively, in fiscal 2026.

Favorable Estimate Revision Over 60 Days for MCK

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McKesson’s Long-Term Strategy and Growth Initiatives

McKesson is strategically positioning itself for long-term growth by expanding its specialty pharmaceutical distribution, investing in biopharma services and optimizing its operational efficiency. The company’s multi-pronged approach focuses on leveraging technological advancements, strengthening its presence in high-value therapeutic areas and driving efficiencies across its core distribution operations. It expects EPS to grow 12-14% over the long term.

A key pillar of McKesson’s strategy is the continued expansion of its oncology and specialty care platforms. The company has significantly grown its U.S. Oncology network, increasing provider participation and strengthening its ability to deliver integrated cancer care. Additionally, its acquisition of PRISM Vision marks a decisive move into ophthalmology and retina care, replicating its successful oncology growth model. This expansion into high-growth therapeutic areas underscores McKesson’s commitment to specialty pharmaceuticals, which remains a key driver of revenue and margin expansion.

In the biopharma services segment, McKesson is investing in digital and data-driven solutions to enhance medication access and affordability. Prescription technology solutions play a critical role in streamlining prior authorizations and improving prescription adherence. The company continues to develop digital tools to improve the patient and provider experience while strengthening its third-party logistics and patient support services.

Operational efficiency remains a crucial focus, with cost optimization initiatives aimed at reducing expenses and enhancing profitability. McKesson has undertaken strategic efforts to modernize its supply chain, including automation in distribution centers and AI-driven analytics to optimize inventory management.

McKesson remains committed to deploying capital to fuel strategic acquisitions, expand specialty care capabilities, and invest in technology and infrastructure. Additionally, MCK plans to return value to shareholders through a balanced approach, including continued share buybacks and a stable dividend payout. The company’s strong free cash flow generation provides flexibility to support these initiatives while maintaining financial stability.

Cheap Valuation Too

MCK stock is currently trading at a slight discount compared to the Medical Dental Supplies industry. Its forward 12-month P/E of 16.7X is lower than the industry’s 17.3X at this moment.

MCK’s P/E F12M vs Industry

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Challenges Facing McKesson and Their Effect on Its Future Performance

McKesson faces several challenges that could affect its performance in the upcoming quarters. One of the primary concerns is the weaker-than-expected illness season, which has led to lower demand for vaccines and testing supplies. This has particularly affected the Medical-Surgical Solutions segment, which relies on seasonal trends to drive sales.

Regulatory and policy uncertainties are another headwind. Changes in pharmaceutical pricing regulations, reimbursement policies, and formulary adjustments by large pharmacy benefit managers could put pressure on margins. Additionally, ongoing public policy debates around drug pricing reform and biosimilars may introduce further unpredictability in revenue streams.

McKesson’s international operations also pose risks, particularly as it completes its exit from European markets. Currency fluctuations, regulatory hurdles, and shifting market dynamics in Canada and Norway could affect revenue stability. Moreover, supply-chain disruptions and cost pressures continue to be a concern. Inflationary trends, labor shortages and transportation costs may strain operating margins despite cost optimization efforts.

While McKesson remains well-positioned for long-term growth, these challenges require careful strategic management to mitigate their potential impact on its financial performance in the coming quarters.

Our Take: Hold 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, MCK’s robust financial performance and key investments make it a compelling buy scenario for long-term investors.

Although the company has an encouraging Zacks Style Score of “B”, it currently carries a Zacks Rank #3 (Hold). The company’s valuation seems attractive with a Value score of “B”. Its Momentum score of “A” also looks promising. However, the Growth score of “F” raises concerns. The stock has formed a lower-high on the charts, as discussed earlier, which also increases the chances of a reversal in the stock price in the near term. We urge investors to remain cautious with MCK and wait for a more appropriate entry point. However, existing investors may continue to hold the stock for a higher return.

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