McKesson Soaring on Buyback Plans
McKesson Corporation (NYSE: MCK) announced adjusted earnings of $1.40 per share, or $300 million, a jump of nearly 100% from last year's profits of $155 million, or 60 cents a share. The company's revenue also jumped, reaching $30.84 billion. Analysts expected results of $1.37 per share. The company also announced that they would repurchase $650 million in common stock above previous plans. Now the company will buy back $1.5 billion.
Strong growth in the healthcare industry combined with the company's steady push for expansion have put it in a strong position to go shopping. Thus the company also announced on Monday its acquisition of Drug Trading Company Limited from Katz Group, a private Canadian company with over 1,800 pharmacies in its network under several brands, including Drug Trading, which McKesson is buying in cash. Barring any unforseen circumstances, the purchase should close by summer. After the deal is done, McKesson plants to integrate the limited company under its own distribution business, while continuing to be Katz Group's primary pharmaceutical distributor.
The purchase gives McKesson joint ownership of ProPharm, a retail management ecosystem including point-of-sale, purchasing, and inventory software specifically for pharmacies. ProPharm has been operating for 35 years.
Besides the ProPharm software suite, McKesson will also take ownership of the Drug Trading brand, under which 850 independent pharmacies across Canada operate. The transfer of ownership will not affect the ownership of those pharmacies, which will still have member-status. However, they will have increased access to McKesson's products and services.
Shares in McKesson were up nearly 3% in after-hours trading, although the stock still hasn't recovered from a fall that began around the middle of January shortly after the company lost a contract with Safeway (NYSE: SWY), which was awarded to Cardinal Health (NYSE: CAH), which climbed on the news. It's P/E/ ratio as of closing on Monday was at 17.36, slightly above most other companies in the sector. However, even after climbing north of $80, the stock price is still far below analyst price targets in excess of $93 per share.
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