McKesson Corporation (MCK)

Conclusion

McKesson Corporation is a United States healthcare company that distributes branded, generic and specialty pharmaceuticals, along with medical-surgical supplies, to retail pharmacies, hospitals, clinics and other healthcare providers. On 2026-11-09 the share price was 1,059.37 USD, giving a market capitalisation of 123.5 billion USD and an enterprise value of 128.1 billion USD.

The verdict is fair. The fair value band runs from 891.92 to 1,337.87 USD, with a midpoint of 1,114.90 USD and a margin of safety of 5.2% at the current price. Today's price-to-earnings ratio of 26.3 sits just below its ten-year median of 27.0, while enterprise value to EBITDA of 17.6 is above its median of 16.2. The discounted cash flow gives 1,573.96 USD per share at a discount rate of 8.87%. The reverse discounted cash flow implies growth of 3.7%, against revenue growth of 11.1% a year over five years and free cash flow per share growth of 12.4%.

The case rests on a return on invested capital of 50.0% against a weighted cost of capital of 8.5%, free cash flow conversion of 149.6% over the last twelve months, and a Piotroski score of 8 out of 9. The case would weaken on the price-to-book ratio of 19.3, against a ten-year median of 2.75, and on the gross margin of 3.7%, which is below its median of 4.8%. The current ratio of 0.90 is also a point to watch.

Financial health

The colour of financial strength is green, held up by the Altman Z-score of 5.90, net debt to EBITDA of 0.64 and interest coverage of 21.9, with only the current ratio of 0.90 rated neutral. The quick ratio is 0.50 and debt to equity is 1.75, which is high but does not weigh heavily on the other measures. The Altman Z-score sits in the safe zone, although that model was designed for manufacturers and McKesson is a distributor, so the reading is indicative only. Insolvency risk is low, at about 1.1% by the estimate of the Ohlson model over one to two years.

Earnings quality

The colour of earnings quality is green. Free cash flow conversion is 149.6% on a trailing twelve-month basis and 144.7% over five years, and free cash flow after stock-based compensation is 7.03 billion USD. The accrual ratio is -1.8%, which points to cash earnings exceeding reported profit. The share count has fallen at a compound rate of 5.0% over five years, reflecting buybacks. The Piotroski score is 8 out of 9. The Beneish M-score is not available. McKesson beat analyst estimates in all eight of the last quarters, with an average surprise of 3.2%, and current-year estimates have risen by 0.9% over ninety days with no downward revisions in the last thirty days.

Profitability

The colour of profitability is yellow. The operating margin of 1.6% is above its ten-year median of 1.4%, and the net margin of 1.1% is above its median of 0.7%. The gross margin of 3.7% is below its median of 4.8%. Operating margin stability is 13.7%. Return on invested capital of 50.0% exceeds the weighted cost of capital of 8.5%, giving a return on invested capital minus cost of capital of 41.6%. Return on equity is 73.6%, but the DuPont split shows that it is driven by an asset turnover of 4.9x and a net margin of only 1.2%, with leverage also contributing given debt to equity of 1.75.

Growth

The colour of growth is green. Revenue has compounded at 13.4% over three years, 11.1% over five years and 7.8% over ten years, and revenue has grown in all ten of the last ten years. Earnings per share have compounded at 15.3% over three years and 14.8% over ten years. Free cash flow per share has compounded at 10.5% over three years, 12.4% over five years and 13.0% over ten years. Analysts expect earnings per share to grow by 13.4% next year.

Valuation

The colour of valuation is yellow. The price-to-earnings ratio of 26.3 is 2.5% below its ten-year median of 27.0. Enterprise value to EBITDA of 17.6 is 8.5% above its median of 16.2, and the price to free cash flow of 17.6 is 73.1% above its median of 10.2. The price-to-sales ratio of 0.29 is 61.5% above its median of 0.18, and the price-to-book ratio of 19.3 is far above its median of 2.75. The discounted cash flow gives 1,573.96 USD per share, using a discount rate of 8.87% and a long-term growth rate of 2.5%. The fair value from historical multiples is 655.83 USD. The fair value band is an order-of-magnitude estimate built on fixed assumptions, not a price target. The reverse discounted cash flow implies 3.7% growth, against 11.1% revenue growth and 12.4% free cash flow per share growth over five years. The dividend yield is 0.3% and the payout on free cash flow is 5.4%.

Risks

The main risk is the high price-to-book ratio of 19.3, which leaves the share price dependent on sustained returns rather than on the asset base. A further fall in the gross margin from 3.7% would squeeze profits in a business with thin margins. The current ratio of 0.90 and debt to equity of 1.75 leave less room to absorb a shock to working capital or refinancing. The Altman model is not designed for a distributor, so its reading is only indicative. Stock-based compensation as a share of revenue is not available, and the Beneish M-score is not available. This analysis has no debt maturity schedule and no revenue breakdown by segment, so it cannot judge refinancing timing or which divisions drive growth.