Due to drug pricing controversies, there has been much concern about how the outcome of the upcoming election will affect pharmaceutical stocks. Dr. Len Yaffe of Stoc*Doc Partners sheds light on the issues in this analysis of drug price negotiation policy, and focuses in on one California ballot proposition that aims to rein in costs.
McKesson Corporation (NYSE:MCK) along with other pharmaceutical distribution companies such as Cardinal Health and AmerisourceBergen have been under tremendous pressure as of late due to political pressures regarding the pharmaceutical supply chain and drug pricing concerns. I recently wrote an article “McKesson Jumps 34% Off Lows – Now What” stating that the easy money had been made from the ~$150 level to the roughly ~$200 level. I also pointed out that greater than 98% of McKesson’s revenues come from pharmaceutical distribution and services domestically and abroad. Thus any impact to this business model will likely have direct negative implications with regard to revenues and EPS. At the closing of that article I stated that currently, McKesson’s P/E ratio sits at the top of its peer cohort and considering the stock has risen over 34% along with the potential erosion of the middle model, I’d be cautious buying at these levels despite additional upside based on its 52-week high of $240. Now enter the latest EpiPen fiasco and subsequent drug price scrutiny being thrusted into the spotlight. Due to a Tweet by Hillary Clinton regarding her distain for Mylan’s price increase, McKesson saw a $7 per share drop or roughly 4% drop in that same session. Since any disruption in this business model will negatively impact McKesson disproportionally compared to the insurance, pharmacy and pharmacy benefit manager (PBM) companies, I’d avoid McKesson especially after the ~30% move to the upside.
The interplay within pharmaceutical supply chain players can be a challenging dynamic to grasp. McKesson positions itself on the distribution side of the network, essentially serving as an intermediary between the drug manufacturer and the pharmacy. McKesson and other middlemen such as Cardinal Health and AmerisourceBergen purchase drugs directly from the manufacturer and then sell them to the pharmacy and capture the spread between the price they pay (to the drug marker) and the price they sell (to the pharmacy) the drugs. Below is a step-by-step breakdown of the pharmaceutical supply chain steps (Figure 1): Continue reading "McKesson Pressured Over Drug Pricing Concerns"→
McKesson Corporation (NYSE:MCK) fell to a 52-week low back in February and has since surged 34%, appreciating from $148 to ~$200 per share as of mid-July. On February 16th, I published an article titled “McKesson Has Hit A 52-Week Low – Buying Opportunity” positing that McKesson has put in place a string of positive shareholder friendly maneuvers to position itself for future growth and break out of its slump. McKesson had hit a 52-week low and boasted a P/E of 16 and a PEG of 1.46 at the time. McKesson appeared very attractive considering its EPS growth, dividend payout, acquisitive mindset and share buyback program. Now that the stock has nearly breached the $200 level thus appreciating over 34%, now what? Continue reading "McKesson Jumps 34% Off Lows - Now What?"→
McKesson Corporation (NYSE:MCK) has been faced with a challenging healthcare landscape as political posturing, drug pricing scrutiny, overall sentiment towards pharmaceutical companies due to price gouging allegations and the overall rotation out of healthcare related stocks. This confluence of events has plagued McKesson’s stock, falling from $241 to $148 or 39% in just 9 months from May of 2015 through February 2016. MCK has been on an acquisition spree as of late and announced layoffs of 1,600 workers or about 4% of its U.S. workforce. These collective efforts are aimed to stem any losses in revenue from a hit to its customer base while continuing to drive value for shareholders. McKesson has acquired two medical firms that focus in oncology for a total of $1.2 billion and Ontario-based Rexall Health for $2.2 billion. McKesson is being proactive and aligning its cost structure in a fiscally responsible manner in order to remain competitive and add value to shareholders. At the writing of my previous article covering McKesson, it had hit a 52-week low of ~$150 in March. Since then, the stock has been on an uptick to current levels at $182 or 20% rise in its stock price. McKesson appears very attractive considering its EPS growth, dividend payout, acquisitive mindset and share buyback program however concerns remain. Continue reading "McKesson Posts Solid Fiscal Q4 Earnings - Concerns Remain"→
McKesson Corporation (NYSE:MCK) has been on an acquisition spree as of late and announced layoffs of 1,600 workers or about 4% of its U.S. workforce. These collective efforts are aimed to stem any losses in revenue from a hit to its customer base while continuing to drive value for shareholders. McKesson has agreed to acquire two privately held medical firms that focus in oncology for a total of $1.2 billion. McKesson has also agreed to acquire Ontario-based Rexall Health for $2.2 billion in Canada. Layoffs are underway as well after the company determined “reductions in our workforce would be necessary to align our cost structure with our business model.” McKesson is being proactive and aligning its cost structure to in a fiscally responsible manner in order to remain competitive and add value to shareholders. After the recent political induced healthcare sell-off, many healthcare stocks look attractive at these levels, specifically McKesson. Once the political cycle is complete in 2016, these stocks will likely benefit from the mere absence of political headwinds. McKesson has hit a 52-week low and remains near that level and boasts a P/E of 16 and a PEG of 1.46. McKesson appears very attractive considering its EPS growth, dividend payout, acquisitive mindset and share buyback program. Continue reading "McKesson Goes On Acquisition Spree And Announces Layoffs"→