McKesson Corp (MCK)

About McKesson:(MCK)

"McKesson Corporation supplies information and care management products and services for the healthcare industry. The company operates in three segments: Pharmaceutical Solutions, Medical-Surgical Solutions, and Provider Technologies. The Pharmaceutical Solutions segment distributes ethical and proprietary drugs, and health and beauty care products throughout North America. It also manufactures and sells automated pharmaceutical dispensing systems for retail pharmacies; provides medical management and specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers; patient and other services for payors; and software, and consulting and outsourcing services to pharmacies. The MedicalSurgical Solutions segment distributes medicalsurgical supplies, and firstaid products and equipment; and provides logistics in the United States and Canada. The Provider Technologies segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care, and strategic management software solutions; automated pharmaceutical dispensing systems for hospitals; and outsourcing and other services to healthcare organizations throughout North America, the United Kingdom, and other European countries. It markets its products and services to integrated delivery networks, hospitals, physician group practices, home health providers, and managed care providers in the U.S. and internationally. McKesson Corp. was founded in 1833 and is headquartered in San Francisco, California. (source finance.yahoo.com)

- 87Billion in revenue (Ranked 16 in Fortune 500)
- 15Billion Market Cap
- Founded in 1833
- $54.42 (01/12/2007)

Pharma Solns : 83.4Billion revenue, # 1 in US, Canada, Mexico, # 1 Generics distributor

Medical surgical solns: #1 in primary care, rapid growth in physician office and pharma and equipment. Growth driver., 2Billion revenue

Provider technologies: 63% of health systems. Emerging business in UK, France.1.5Billion revenues. Higher margins.

Relationships:
Walmart, Target, Caremark, Aetna, Costco, Riteaid, Cigna, safewat, Omnicare

Growth:
2000 Revenue 37Billion
2006 Revenue 86 Billion (16% cagr)

EPS:
2000 : 0.65
2006 : 2.44 (25% CAGR)

CashFlow:
6.3billion in last 4.5 years

Returns to shareholders:
Measured share reinvestments (1.8B) and dividend growth (0.3B), acquisitions (1.2B) and internal investments(1.3B).

Growth drivers:
Large volume of branded drugs scheduled for conversion.
Good relationships with manufacturers and customers
Demographics driving drug utilization.

Provider technologies:
strong relationships,comprehensive suite, highly rates customer support,
physician and consumer directed healthcare opps,

Financials
Market Cap (intraday): 16.11B
Revenue (ttm): 91.80B
Profit Margin (ttm): 0.90%
Operating Margin (ttm): 1.24%

Forward P/E (fye 31-Mar-08) 1: 17.44
Price/Sales (ttm): 0.17 (So low!!)
Price/Cash Flow Ratio 13.30
Price/Book Value 2.72
P/E Ratio 5-Year High 29.1
P/E Ratio 5-Year Low 11.2

Return on Assets (ttm): 3.48%
Return on Equity (ttm): 15.12%

Total Cash (mrq): 2.25B
Total Cash Per Share (mrq): 7.616
Total Debt (mrq): 984.00M


Dividend yield : 0.4% (payout ratio 9%)

FCF : 1.3Billion (very small capex)

% Held by Insiders: 0.14%

Valuation

This is my first attempt at Valuing a company using the Future Value/ Present Value technique from Tom E.

Assumptions : Discount Rate : 12, Number of years : 5

Avg Scenario: (analysts expect 13% growth)
Future Value : $87.88 (assuming 13% eps growth with a terminal P/E of 18)
Present Value : $49.87

Rosy Scenario: (surgical and technology divisions can be growth drivers)
Future Value : $106.60 (assuming 15% eps growth with a terminal P/E of 20)
Present Value : $60.489

Dooms day scenario:
Future Value : $62.52 (assuming 11% eps growth with a terminal P/E of 14 )
Present value : $35.47

Assuming you take the avg scenario, the company could become attractive at 50$ or so.