Wednesday - Baird has raised the price target on McKesson Corporation (NYSE:MCK) shares to $679 from the previous $671, while reiterating an Outperform rating.
The increase comes after a detailed valuation analysis that includes price-to-earnings (P/E), discounted cash flow (DCF), and enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) methodologies.
The firm's valuation approach combines near-term projections with a five-year forecast, which is adjusted for time and risk. Baird applies a 17.5 times multiple across one-year, two-year, and long-term P/E models.
Additionally, the DCF model assumes a weighted average cost of capital (WACC) of approximately 9% and a terminal growth rate of 3.0%. For the EV/EBITDA model, a 13.0 times multiple is used on the next twelve months (NTM) forecast.
The analyst's commentary highlighted that the updated price target reflects a comprehensive assessment of various valuation techniques. The long-term P/E analysis is balanced by adjusting for time and risk factors.
The applied multiples and growth rates in the DCF and EV/EBITDA models are tailored to McKesson's financial projections and industry position.
Despite the positive outlook, the analyst also noted potential risks specific to McKesson. These include the company's customer concentration, such as its relationship with CVS, the tail risks associated with opioid litigation—although mitigated by a global settlement—the potential for shifts in market sentiment, possible changes in drug pricing policies, and other sector-related risks.
The new price target suggests Baird's confidence in McKesson's stock performance, underpinned by robust valuation frameworks and adjusted for inherent industry and company-specific risks.
As the market processes this update, McKesson's stock may reflect the firm's maintained positive stance and adjusted expectations for the future.
InvestingPro Insights
With Baird's recent price target increase for McKesson Corporation (NYSE:MCK), investors may find additional context through real-time data and insights. According to InvestingPro, McKesson's management has been bullish on its stock, evidenced by aggressive share buybacks. This activity can signal management's confidence in the company's future prospects. Additionally, McKesson's commitment to shareholder returns is apparent with the company raising its dividend for 16 consecutive years and maintaining dividend payments for 31 consecutive years. These actions are often seen as indicators of a company's financial health and stability.
From a financial perspective, McKesson's market capitalization stands at $71.4 billion, and the stock is trading at a P/E ratio of 24.37, with an adjusted P/E ratio of 20.13 for the last twelve months as of Q4 2024. The company has also demonstrated solid revenue growth of 11.65% over the same period, with a gross profit margin of 4.07%. These metrics underscore the company's ability to grow its top line while managing its profitability.
For investors seeking to delve deeper into McKesson's performance and potential, InvestingPro offers additional insights. There are 13 more InvestingPro Tips available, providing a comprehensive analysis of the stock's trajectory and financial health. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and explore these valuable insights to inform your investment decisions.
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