McKesson Corporation (MCK Quick QuoteMCK - Free Report) is well-poised for growth in the coming quarters, courtesy of its strong Biologics business. The optimism led by a solid fourth-quarter fiscal 2024 performance and improving demand for healthcare are expected to contribute further. However, stiff competition and weaker generic pharmaceutical pricing trends persist.

Over the past year, this Zacks Rank #3 (Hold) stock has rallied 41.4%.

The renowned health care services and information technology company has a market capitalization of $74.61 billion. The company projects 13.6% growth for the next five years and expects to witness continued improvements in its business. McKesson surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same once, delivering an earnings surprise of 8.4%, on average.

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Let’s delve deeper.

Strength in Biologics: Investors are optimistic about McKesson’s robust Biologics business. Independent specialty pharmacy, Biologics by McKesson, has been making impressive progress lately. Last month, Accord BioPharma, Inc. selected the pharmacy as an exclusive specialty pharmacy provider for CAMCEVI (leuprolide) 42mg injection emulsion for subcutaneous use.

In April, Day One Biopharmaceuticals selected the pharmacy as a limited network specialty pharmacy for OJEMDATM (tovorafenib) for the treatment of pediatric low-grade glioma (pLGG).

Improving Demand for Healthcare: Following significant market disruption in the past three years due to COVID-19, the medical sector is witnessing improving demand across several verticals, especially surgeries. McKesson is also benefiting from a recovery in demand driving volumes, raising our optimism. Moreover, the improving prices of products are boosting sales. Rising demand for extended and primary care is expected to drive the top line for Medical-Surgical business in fiscal 2024.

Strong Q4 Results: McKesson’s robust fourth-quarter fiscal 2024 results buoy optimism. The company recorded a robust uptick in its overall top line. The revenue uptick was primarily driven by growth in the U.S. Pharmaceutical segment, resulting from increased prescription volumes, including higher volumes from specialty products, retail national account customers, and GLP-1 medications.

Downsides

Weak Trends: McKesson distributes generic pharmaceuticals, which are subject to price fluctuation. The Distribution Solutions segment continues to experience weaker generic pharmaceutical pricing trends. Continued volatility, unfavorable pricing trends, reimbursement of generic drugs, and significant fluctuations in the nature, frequency, and magnitude of generic pharmaceutical launches could have a material adverse impact on McKesson.

Stiff Competition: Distribution Solutions segment faces stiff competition both in terms of price and service from various full-line, short-line, and specialty wholesalers, service merchandisers, self-warehousing chains, manufacturers engaged in direct distribution, third-party logistics companies, and large-payer organizations. Moreover, the company depends on fewer suppliers for its products. As a result, it is not in a position to negotiate pricing.

Estimate Trend

McKesson has been witnessing a positive estimate revision trend for fiscal 2025. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 1.4% north to $31.47.

The Zacks Consensus Estimate for first-quarter fiscal 2025 revenues is pegged at $83.36 billion, which indicates a 11.9% improvement from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita Inc. (DVA Quick QuoteDVA - Free Report) , Intuitive Surgical, Inc. (ISRG Quick QuoteISRG - Free Report) and Elevance Health, Inc. (ELV Quick QuoteELV - Free Report) .

DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DaVita’s shares have gained 34.5% in the past year.

Intuitive Surgical, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 16.1%. ISRG’s earnings surpassed estimates in each of the trailing four quarters, with the average being 6.8%.

Intuitive Surgical has gained 15.3% in the past year.

Elevance Health, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.2%. ELV’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 2.8%.

Elevance Health’s shares have rallied 30.5% in the past year.