MCKESSON MCK Healthcare Group Mc Kesson Distributor Provide
MCKESSON (MCK) Healthcare Group
Mc. Kesson ● ● Distributor Provide PHARMACEUTICALS, MEDICAL SUPPLIES and INFORMATION TECHNOLOGIES Distribution Solutions Technology Solutions
Summary ● ● ● ● Industry Outlook Two segments of Company Customers and Suppliers Third Quarter Results Competitors Downsides Increasing Shareholder Value
Healthcare Portfolio Safer Play compared to riskier companies in the portfolio Distribution and Technology Biopharmaceutical s Healthcare Providers
Industry Outlook ● WHOLESALE DRUG INDUSTRY OUTLOOK ● ● Affordable Care Act increases the number of Americans covered by 32 million Increased technology and communication allows the medical industry to better respond to consumers wants and needs Specialty drugs (cancer, arthritis, etc) continue to have high profits TECHNOLOGY INDUSTRY OUTLOOK ● ● Overall positive outlook Technology companies should hoard cash because they will need it to invest
● ● Current price: $106. 83 52 week range: $84. 65 - $111. 55 Beta: . 63 Market cap: $24. 88 billion ● ● Current price: $107. 42 52 week range: $84. 65 - $111. 55 Beta: . 63 Market cap: $24. 88 billion
Distributions Solutions (MDS) ● ● Largest pharmaceutical distributor in the world Distributes: ● ● ● Drugs Medical-surgical supplies Medical equipment Health and beauty care products Sells Pharmacy Software Fragmented market →ONE STOP SHOP
Growth Opportunities ● Increase in Drug Distribution Volume ● ● ● New Customers Increased business with existing customers Negatives ● ● ● Faces strong competition in price Loss of one large customer → large revenue swings Lower-margin business than technology
Customers ● ● ● Top 10 customers accounted for 52% of total revenues CVS: 16% Rite Aid: 10%
Suppliers ● ● ● Top ten suppliers account for 45% of purchases No supplier accounted for more than 6% of total purchases Negative: Increased consolidation of pharmaceutical suppliers
Research and Development
Mc. Kesson Technology Solutions ● ● No. 1 in medical management software and services to Payers Serve 52% of all U. S. hospitals ● ● 77% with 200 or more bed Top competitors: Amerisource. Bergen Corp. , Epic, Cerner Corp. , Athenahealth Inc. , Allscripts
Healthcare IT Market Growth ● Public policy agenda: ACA ● $17 billion in subsidies for hospitals that implement EMR ● 2015: penalties for hospitals without EMR
Third Quarter Results ● ● ● Revenues of $31. 2 billion, up 1% Third Quarter GAAP earnings per diluted share of $1. 24, up 3% Cash generation of $276 million, ended quarter with $2. 7 billion Distributions Solutions Revenues up 1% Medical-Surgical distribution and services up 15%
Steady Revenue Growth
Adjusted Earnings Per Share Growth
MCK vs. Competitors Ratios Ticker MKT Cap P/E EPS 1 YR Growth Total Revenue Rev 1 YR Growth Op Margin ROE EV/EBIT DA MCK 24. 88 B 16. 55 30. 4% 123. 53 B 9. 5% 1. 87% 19. 97% 8. 51 ABC 11. 99 B 17. 77 9. 8% 80. 76 B -0. 6% 1. 63% 27. 01% 9. 09 CAH 14. 47 B 12. 45 11. 9% 104. 80 B 4. 8% 1. 73% 17. 68% 6. 50 OMI 2. 02 B 17. 03 -5. 5% 8. 91 B 3. 25% 2. 32% 11. 53% 8. 07 Industry Median 9. 39 B 17. 57 9. 80% 26. 08 B 4. 78% 2. 32% 13. 46% 8. 70 Data from Bloomberg
Why MCK over its Competitors ● ● ● Size: Dominant Market Share in a highly competitive industry Strong Growth Fair relative valuation
Downsides ● ● ● Reliance on major accounts Risks associated with integration of acquisitions Lower than expected drug price increases Lawsuits Generic Risks of potential policy changes
Create Shareholder Value $11 Billion of Capital Deployed from FY 09 FY 12 ● ● Value Creating Acquisitions Share Repurchases Internal Capital Spending Dividend
Acquisitions ● ● ● PSS World Medical October 2012 $2. 1 billion transaction Forecast $100 M in cost synergies by year 4 Expect to add $0. 15 -$0. 25 to Earnings per Share
Acquisitions ● Nov 2010 – US Oncology ● ● $2. 16 B - cash Jan 2012 – Katz Group ● ● Canada $920 M - cash Integrated retail pharmacy network in Canada Expect EPS accretion of $0. 15 in FY 13
Valuation
Valuation (Mean)
Conclusion ● Key Investment Risks ● ● Liable to lawsuits and government regulation Strengths ● ● ● One Stop Shop Size gives it competitive edge Evolving Healthcare IT Market Commitment to increasing Shareholder Value Cash Fits well into the Portfolio
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