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A Quality, Undervalued Healthcare Firm

We see opportunity with wide-moat McKesson as drug pricing downturns and client contract losses abate.


Vishnu Lekraj: Today we are talking about McKesson Corp, a large global drug distributor.

What McKesson does is source drugs around the globe from different manufacturers, both generics and branded, and brings them into the U.S. and ships them to retail outlets--both large chains like Walgreens and smaller retail pharmacy firms. McKesson's unparalleled volume, its wide economic moat, and deep entrenchment within the pharmaceutical supply chain has created an environment for it to produce ROICs well above its weighted average cost of capital. We believe this trend will last over the longer term. 

Many of the near-term issues McKesson has faced, in terms of drug pricing downturns, issues with client contract losses, are in the short term and will abate. Recent results for McKesson have pointed into this direction.

We believe the firm's undervalued stock, wide economic moat, and quality operations give investors an opportunity here to own a very quality firm at undervalued price. 

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.