Within the final 5 years, McKesson stock (NYSE: MCK), a healthcare provide chain administration firm, surged 4x, leaving the likes of Google (NASDAQ: GOOG) within the mud. This yr alone, it’s up 14%, whereas Google is down 12%. How is that? McKesson’s inventory has grown 284% since 2020, primarily as a consequence of:
- a 97% rise in its trailing adjusted P/E ratio from 11x in 2020 to 22x presently;
- a 49% development in revenues from $231 billion to $345 billion over the identical interval; and
- a 28% fall in whole shares to 130 million; partly offset by
- a 6% fall in internet revenue margin from 1.2% to 1.1% over this era
In the meantime, Google inventory has risen 92%, pushed by a 174% earnings enhance from $2.93 per share in 2020 to $8.04 per share in 2024, although this development was partially offset by a 30% discount in its trailing P/E ratio from 30x to 21x over the identical timeframe.
We’ll delve into the specifics of those components. Whereas MCK inventory has outperformed GOOG, if you need an upside with a smoother experience than a person inventory, contemplate the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
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McKesson’s Earnings Transformation: Strategic Progress Drivers and Operational Effectivity
McKesson’s earnings have doubled, pushed by substantial development in each gross sales and working revenue. The corporate’s income elevated practically 50%, from $231 billion in 2020 to $345 billion presently, as a consequence of a number of strategic components.
A big contributor was McKesson’s integral function in COVID-19 response efforts, the place the corporate served because the U.S. authorities’s centralized distributor for vaccines, checks, and medical provides. This place significantly enhanced income throughout the pandemic interval. Moreover, McKesson has strategically expanded its pharmaceutical distribution enterprise whereas capitalizing on rising demand for specialty prescription drugs, notably in oncology and different advanced therapeutic areas that usually generate larger margins. Currently, the expansion in prescription drugs distribution enterprise has stemmed from elevated prescription volumes, particularly inside specialty merchandise, retail nationwide accounts, and GLP-1 drugs.
The corporate has additional strengthened its market place by means of focused acquisitions, together with Rx Financial savings Options, OncoHealth, and a controlling curiosity in Florida Most cancers Specialists & Analysis Institutes. These acquisitions have expanded McKesson’s capabilities in oncology and biopharma companies. Moreover, McKesson’s medical-surgical distribution enterprise has skilled sturdy development, pushed by sustained demand for medical provides that started throughout the pandemic and has continued thereafter.
Not solely did McKesson see its gross sales rise, its internet revenue has risen 40% from $2.7 billion in 2020 to $3.8 billion now. The corporate’s internet margin although contracted by a modest 10 bps to 1.1% over this era. On condition that McKesson primarily acts as an middleman between producers and healthcare suppliers, one of these enterprise usually operates on skinny margins with excessive quantity.
Additional contributing to the earnings development is a big 28% fall in whole shares excellent, as the corporate spent $13 billion on share repurchases within the final 5 years.
McKesson’s Valuation Surge and Market Resilience
McKesson has skilled a doubling of its trailing price-to-earnings ratio from 11x to 22x since 2020, pushed by a number of key components. Traders have responded positively to the corporate’s strategic shift towards higher-margin companies, notably specialty prescription drugs, oncology companies, and know-how options—a change that implies stronger revenue sustainability past typical distribution operations. This strategic evolution, mixed with spectacular income and earnings development, substantiates the numerous enlargement in its valuation a number of.
The corporate’s exceptional efficiency extends past mere valuation metrics. In 2022, when Google declined by over 30%, McKesson achieved beneficial properties exceeding 50%. This distinctive efficiency stems from the corporate’s place as a important factor of healthcare infrastructure, enhancing its attraction to buyers searching for defensive investments throughout financial volatility. McKesson’s constant money era supplies beneficial stability in unsure market situations.
Traders notably acknowledged McKesson’s important function throughout the pandemic, highlighting its significance to public well being techniques and contributing to its inventory worth appreciation in 2022. This resilience has been demonstrated repeatedly throughout current financial downturns. MCK inventory’s peak-to-trough decline of simply 11.0% in 2022 considerably outperformed the S&P 500’s 25.4% drop. Equally, throughout the 2020 market turbulence, McKesson inventory fell 32.3% from its highs, marginally higher than the S&P 500’s 33.9% decline, additional illustrating its relative stability throughout market stress.
Not too comfortable concerning the unstable nature of particular person shares? The Trefis High Quality (HQ) Portfolio, with a group of 30 shares, has a monitor file of comfortably outperforming the S&P 500 during the last 4-year interval. Why is that? As a bunch, HQ Portfolio shares supplied higher returns with much less danger versus the benchmark index; much less of a roller-coaster experience, as evident in HQ Portfolio efficiency metrics.
| Returns | Mar 2025 MTD [1] |
2025 YTD [1] |
2017-25 Complete [2] |
| GOOG Return | -3% | -12% | 336% |
| MCK Return | 2% | 14% | 395% |
| S&P 500 Return | -5% | -4% | 152% |
| Trefis Bolstered Worth Portfolio | -6% | -8% | 508% |
[1] Returns as of three/17/2025
[2] Cumulative whole returns for the reason that finish of 2016
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
