McKesson Raises View Due To Accounting Changes, Stock Up

Shares of McKesson Corporation (NYSE:MCK) were up 3.83% after the company announced an increase in its guidance for fiscal 2017.

The company now expects earnings per share in the range of $13.43–13.93, up from the previous expectation of $13.30–$13.80. The new guidance excludes charges of approximately 12 cents to 15 cents relating to the cost alignment plan undertaken by management earlier this year.

McKesson raised its fiscal 2017 guidance due to the early adoption of Accounting Standards Update 2016–09, as released by the Financial Accounting Standards Board. The standards primarily relate to stock-based compensation and the impact of foreign currency exchange effects, related in particular to British pound sterling-denominated activities following the UK’s exit from the European Union.

Meanwhile, the company continues to expect growth in the high single digits at the Distribution Solutions segment, driven by market expansion and acquisitions in fiscal 2017. On a constant currency basis, the Pharmaceutical distribution and services business in North America is projected to grow in the high single digits as well, while international Pharmaceutical distribution and services revenues increase in the low double digits. Revenues at the Medical-Surgical distribution and services division are projected to grow in the mid-single digits.

We note that McKesson has been facing challenging business conditions. Branded drug price trends in the U.S. market are expected to be modestly below 2016 levels in the U.S. The company expects a nominal contribution from price increase of generic pharmaceuticals in fiscal 2017. Contributions from the launch of new oral generic pharmaceuticals in the U.S. market are also expected to decrease year over year.

Earlier this week, McKesson announced that it will collaborate with Change Healthcare Holdings to create a new healthcare information technology company. McKesson will offer majority of its Technology Solutions businesses for the new company. It will, however, retain RelayHealth Pharmacy and Enterprise Information Solutions.

McKesson’s Technology Business has been facing challenging conditions for quite some time now as revenues continued to decline. Hence, a spin-off of the business was around the corner as the company was looking to focus on its core distribution business. (Read here: McKesson's IT Business to Merge with Change Healthcare)

McKesson currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare sector include Pfizer, Inc. (NYSE:PFE) , Bristol-Myers Squibb Co. (NYSE:BMY) and Johnson & Johnson (NYSE:JNJ) . While Pfizer and Bristol-Myers sport a Zacks Rank #1 (Strong Buy), Johnson & Johnson is a Zacks Rank #2 (Buy) stock.

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