McKesson (MCK) has been on a roll, with its shares soaring 18.3% year-to-date, significantly outpacing the industry’s 0.6% growth. This performance even surpasses the S&P 500 Composite’s 16.5% gain during the same period. This Zacks Rank #3 (Hold) company, headquartered in San Francisco, California, operates in two primary segments: Distribution Solutions and Technology Solutions. The Distribution Solutions segment distributes pharmaceuticals and other healthcare products globally, while also offering practice management, technology, and clinical support services. The Technology Solutions segment provides enterprise-wide software solutions for various aspects of healthcare operations.
The driving force behind McKesson’s impressive stock performance is the strength of its U.S. Pharmaceutical business. A solid first-quarter performance and rising healthcare demand have fueled investor optimism. This optimism is further bolstered by updated earnings guidance. During its first-quarter 2025 earnings call, McKesson raised its adjusted earnings per share (EPS) guidance for fiscal 2025. The company now anticipates adjusted EPS in the range of $31.75-$32.55, representing a 16-19% increase from the previous year. Revenue is also projected to grow by 15-17% year-over-year.
McKesson’s strong first-quarter performance, marked by a significant uptick in its top line, was largely driven by its U.S. Pharmaceutical segment. Increased prescription volumes, particularly for specialty products, retail national account customers, and GLP-1 medications, fueled this growth. The company has also benefited from a rebound in demand across various medical sectors, particularly surgeries, following the disruption caused by the COVID-19 pandemic. This demand-driven volume growth, combined with increasing product pricing, is positively impacting sales.
In April, McKesson launched Project Oasis, an initiative aimed at enhancing health equity for at-risk populations in underserved communities. The growing demand for extended and primary care is expected to drive the top line of the Medical-Surgical business in fiscal 2025. However, a weak first-quarter performance in this segment due to challenges in the primary care channel presents a cause for concern. While McKesson is working to improve operational efficiency and cost optimization, the impact of these efforts on the company’s performance may not be immediately apparent.
Alternative Healthcare Stocks to Consider
For investors seeking other healthcare investment opportunities, several companies stand out. Universal Health Service (UHS) carries a Zacks Rank #1 (Strong Buy), while Quest Diagnostics (DGX) and ABM Industries (ABM) are ranked #2 (Buy). Universal Health Service, with an estimated long-term growth rate of 19%, has consistently surpassed earnings estimates in the past four quarters. The company’s shares have gained 41.1% year-to-date, outperforming the industry’s 34.8% rise.
Quest Diagnostics, boasting an estimated long-term growth rate of 6.20%, has also exceeded earnings estimates for the past four quarters. Its shares have gained 3.7% year-to-date, although this lags behind the industry’s 10.2% rise. ABM Industries, with an average earnings surprise of 7.34% over the past four quarters, has seen its shares climb 24.1% this year, outperforming the industry’s 11.9% growth.
McKesson, despite the challenges in its Medical-Surgical segment, remains a compelling investment opportunity due to its solid fundamentals and growth prospects. The company’s strong performance in its U.S. Pharmaceutical business and optimistic earnings guidance point towards a positive future. Investors should also consider exploring other promising healthcare stocks, like Universal Health Service, Quest Diagnostics, and ABM Industries, to diversify their portfolios.
