MCK: North American Pharma Momentum Will Drive Future EPS Framework Confidence

Our McKesson narrative fair value has increased modestly to approximately $939 per share from about $935, reflecting analysts' higher price targets and conviction in sustained EPS growth, improved North American Pharma momentum, and a more robust valuation framework supported by stronger industry demand trends.

Analyst Commentary

Street research sentiment on McKesson remains skewed positive, with a broad wave of price target increases reflecting higher conviction in the companys ability to deliver on its upgraded long term earnings framework and FY26 guidance.

Bullish Takeaways

• Bullish analysts are lifting price targets into the 850 to 1,000 range, arguing that the stocks current forward earnings multiple still underestimates McKessons enhanced long term EPS growth profile of 13 percent to 16 percent.
• Several models now assume mid single digit to high single digit core AOI growth in North American Pharma through FY26, with particular confidence in oncology, biopharma services, and multispecialty practices as structurally higher margin growth drivers.
• The recent investor day, updated FY26 guidance, and simplified segment reporting are viewed as improving transparency and visibility, which in turn supports multiple expansion as execution risk is perceived to be lower.
• JPMorgan and other bullish analysts highlight increased long term targets, lower interest expense, and a relatively unlevered balance sheet as key supports for sustained capital returns and upside to current valuation.

Bearish Takeaways

• More cautious analysts maintain Neutral stances and argue that, at roughly the high teens forward P or E, much of the accelerated growth story and investor day optimism may already be reflected in the share price.
• There is concern that stepped up second half investments and elevated spending to support growth initiatives could pressure near term margins if demand or utilization trends soften from currently robust levels.
• Some bearish analysts flag dependence on continued strength in RxTS and specialty segments, noting that any slowdown in biopharma pipeline activity or reimbursement changes could challenge the durability of current AOI growth assumptions.
• A subset of the Street cautions that the raised long term earnings growth targets increase execution risk, and that any miss versus FY26 guidance could trigger a valuation reset from present peak multiples.

What's in the News

• The Trump administration is preparing a probe into whether U.S. trading partners are underpaying for drugs, a potential policy shift that could affect major distributors including McKesson alongside large pharma manufacturers (Financial Times).
• McKesson completed a buyback tranche from July 1, 2025 to September 30, 2025, repurchasing 1,200,000 shares for $824.35 million and bringing total repurchases under its May 24, 2018 authorization to 63,200,000 shares, or 41.11 percent, for $17,777.59 million (company filing).
• McKesson entered a distribution services agreement with Citius Oncology to serve as an authorized distributor of record for LYMPHIR, an FDA approved immunotherapy for relapsed or refractory Stage I to III cutaneous T cell lymphoma. This agreement completes Citius Oncology's core U.S. distribution network ahead of the drug's planned commercial launch in the fourth quarter of 2025 (company announcement).
• Iterum Therapeutics announced that ORLYNVAH is now stocked at McKesson, enabling certain physicians to procure the product directly through McKesson's specialty distribution channel in line with their practice preferences (company announcement).

Valuation Changes

• Fair Value has risen slightly, with our narrative estimate increasing from approximately $935 to about $939 per share.
• Discount Rate is effectively unchanged, edging down minimally from 6.96 percent to 6.96 percent, indicating a stable risk and return framework.
• Revenue Growth expectations remain stable, with the long term annual growth rate holding at roughly 8.48 percent.
• Net Profit Margin assumptions are effectively flat, with only a de minimis adjustment that keeps projected margins around 1.26 percent.
• Future P or E has risen slightly, moving from roughly 21.4x to about 21.5x, implying modest multiple expansion embedded in the updated valuation.