Drug distributor McKesson seen getting likely boost from COVID vaccine demand

3 mins read
FILE PHOTO: Moderna's COVID-19 vaccine at the McKesson distribution center in Olive Branch, Mississippi

By Manojna Maddipatla

– McKesson Corp is expected to report strong earnings on Wednesday as an Omicron-driven surge in demand for COVID-19 vaccines and tests is likely to insulate the drug distributor from tepid sales of other medical products.

The unit which sells medical and surgical products contributes about 5% to McKesson’s revenue, compared with rival Cardinal Health Inc’s similar business accounting for 10%.

A surge in COVID-19 cases due to the fast-spreading Omicron variant has overwhelmed hospitals, forcing them to turn away patients seeking less-urgent procedures.

McKesson’s contract with the U.S. Centers for Disease Control and Prevention to distribute coronavirus vaccines and ancillary supplies has helped it offset any pockets of slower growth tied to volatility in elective surgeries, BofA Securities analyst Michael Cherney said.

(Graphic: COVID-19 impact on Cardinal Health segment revenue growth: https://graphics.reuters.com/MCKESSON-RESULTS/klvykmddlvg/chart.png)

THE CONTEXT

Cardinal Health last month cut the profit forecast for its medical segment, which sells medical, surgical and laboratory products, citing higher costs resulting from global supply chain constraints, and said it was expecting a hit of 40 cents to 45 cents to its adjusted annual earnings.

Given the spike in COVID-19 infections in the last two months, a key area of focus for Cardinal Health will be potential implications for its medical segment, said Credit Suisse analyst Jailendra Singh, adding that the company’s laboratory business can benefit from an increased demand for testing.


McKesson in December raised its full-year adjusted earnings per share outlook by 40 cents, helped by the distribution of COVID-19 vaccine boosters.

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(Graphic: McKesson’s drug & medical product segment growth McKesson’s drug & medical product segment growth: https://graphics.reuters.com/MCKESSON-RESULTS/PREVIEW/egpbklaxlvq/chart.png)

McKesson beat analysts’ estimates for profit in each of the past twelve quarters, while Cardinal Health missed expectations in two of the last four quarters.

THE FUNDAMENTALS

** McKesson is set to report third-quarter revenue of $66.49 billion and a profit of $5.42 per share, according to Refinitiv data. In the year-earlier quarter, the company posted a profit of $4.60 per share.

** Cardinal Health is set to report second-quarter revenue of $45.57 billion and a profit of $1.23 per share, according to Refinitiv data. In the year-earlier quarter, the company posted a profit of $1.74 per share.

WALL STREET SENTIMENT

** The current average analyst rating on McKesson’s shares is “buy”, with two analysts rating it “hold”, and 14 “buy” or higher. The current median 12-month price target is $290.

** The current average analyst rating on Cardinal Health shares is “hold”, with 11 analysts rating it “hold”, four “buy” and one “sell”. The current median 12-month price target is $56.


(Reporting by Manojna Maddipatla and Dania Nadeem in Bengaluru; Editing by Shounak Dasgupta)

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