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Analyst 'Takes A Flyer' On McKesson, Upgrades Ahead Of Earnings

Analyst 'Takes A Flyer' On McKesson, Upgrades Ahead Of Earnings

"Taking a flyer" on McKesson Corporation (NYSE: MCK), as per its recent assertion that it would take a call at the right time, Baird upgraded shares of the company. The firm noted that the company's shares have materially underperformed in the year-to-date period as well as the trailing 12-month period, and trade at notable discounts, both on an absolute and relative basis.

As such, the firm upgrades shares of McKesson from Neutral to Outperform and increased its price target from $175 to $178. The firm clarified that the 20-percent upside potential implied by the revised price target presented adequate cushion for a tactical upgrade.

In pre-market trading, shares of McKesson were rallying 3.02 percent to $152.90.

Confidence In 2018

Analyst Eric Coldwell indicated that time the firm spent with McKesson management last week had only limited influence on the call. Based on the meeting, the analyst said management, though it did not provide any quarterly guidance, exuded confidence in 2018 and the company's long-term vision.

While stating that his visibility into the second quarter of 2018 remains limited, Coldwell also said he believes the September quarter will demonstrably exceed the fiscal first quarter performance (see Coldwell's track record here).

The analyst thinks the tone and outlook for the December and March quarters will be relatively positive, irrespective of the September outcome.

See also: 4 Reasons You Can Expect Allscripts To Outperform

Upside Risk Returning To Story

Baird noted that buy-side generics procurement has materially improved and sell-side customer pricing is stabilizing. Additionally, brand price inflation guidance and guidance for generics that inflate in value is very modest, and net reimbursement headwinds are likely balancing, the firm added.

The firm believes upside risk is returning to the McKesson story, though believing it might take another quarter or two to present fully. Longer term, the firm still sees material risk for changing dynamics.

Opportunities And Risks

On the opportunities, the firm noted that the company is building a much more balanced model, which might have been more tangible, if it weren't for some items such as brand an d generic inflation erosion, customer price wars and reimbursement pressures.

"Over the next few quarters the headwinds appear more balanced against the tailwinds," the firm opined.

Meanwhile, the firm sees, Inc. (NASDAQ: AMZN), the new "Blink Theory," generic manufacturer tirades, regulatory and legal risks such as the opioid crisis as topical risks.

Related News: via Wikimedia Commons

Latest Ratings for MCK

Jan 2019UpgradesSellHold
Jan 2019Initiates Coverage OnNeutral
Dec 2018MaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for MCK
View the Latest Analyst Ratings

Posted-In: Baird Eric ColdwellAnalyst Color Long Ideas Upgrades Price Target Analyst Ratings Trading Ideas Best of Benzinga


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