MCK: North American Pharma Momentum Will Drive Future Outlook Amid Policy Uncertainty

We modestly raise our McKesson fair value estimate to about $934.79 per share from roughly $934.71, reflecting analysts' higher price targets, stronger confidence in long term EPS growth, and sustained North American Pharma momentum.

Analyst Commentary

Street research on McKesson has turned increasingly constructive, with multiple firms lifting price targets in response to upgraded long term guidance, stronger segment momentum, and enhanced disclosure following the recent investor day.

Bullish Takeaways

Bullish analysts see McKesson's raised long term EPS growth outlook of 13 to 16 percent as a key driver of further multiple expansion and support for price targets approaching or exceeding 900 dollars per share.
North American Pharma and oncology or multispecialty businesses are viewed as the central growth engines, with updated AOI targets above prior US Pharma guidance reinforcing confidence in durable mid single digit to high single digit core AOI growth into fiscal 2026.
Several reports highlight simplified segment reporting and improved transparency as catalysts for higher conviction in the durability and quality of earnings, which helps justify higher valuation multiples.
Analysts point to McKesson's relatively unlevered balance sheet and focused investments in higher margin oncology and biopharma services as adding optionality for capital deployment and supporting the premium to peers.

Bearish Takeaways

Bearish analysts, while generally constructive, maintain more tempered targets near the mid 700 to mid 800 dollar range, reflecting caution around how much of the long term guidance improvement is already embedded in the stock's current forward earnings multiple.
Some research notes flag planned second half investment spending and the step up in growth expectations as potential execution risks, particularly if industry utilization or drug pricing trends soften from current robust levels.
A neutral stance from select coverage emphasizes that the upgraded growth algorithm, though encouraging, may face near term industry headwinds, leading to a more balanced risk or reward profile compared with the most bullish scenarios.
There is also an undercurrent of concern that peer performance and sector wide rerating, rather than McKesson specific catalysts alone, may be contributing to recent target increases, which could limit incremental upside if industry conditions normalize.

What's in the News

Trump administration prepares a new probe into whether U.S. trading partners are underpaying for pharmaceuticals, potentially affecting pricing dynamics for major drug distributors including McKesson (Financial Times)
McKesson completes a major share repurchase tranche, buying back 1,200,000 shares in Q3 2025 and bringing total repurchases under its May 2018 authorization to 63.2 million shares, or about 41.11 percent of shares outstanding
Citius Oncology selects McKesson 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 reinforces McKesson's role in specialty oncology distribution ahead of the drug's planned late 2025 commercial launch
Iterum Therapeutics announces that ORLYNVAH is now stocked at McKesson through a specialty distribution channel, enabling select physicians to procure the therapy directly in line with their practice preferences
Playhouse MD forms a strategic distribution alliance with McKesson Medical Surgical, making its play based pediatric at home medical devices available nationwide via Amazon and positioning McKesson as a key partner in pediatric consumer healthcare

Valuation Changes

Fair Value Estimate has risen slightly to about $934.79 per share from roughly $934.71, reflecting a marginal upward adjustment in the long term outlook.
Discount Rate has edged down fractionally to approximately 6.96 percent from 6.96 percent, implying virtually no change in the risk profile applied to future cash flows.
Revenue Growth assumption has increased modestly to about 8.48 percent from roughly 8.41 percent, indicating a slightly stronger top line trajectory.
Net Profit Margin expectation has dipped marginally to approximately 1.26 percent from about 1.27 percent, suggesting a very small compression in anticipated profitability.
Future P/E multiple has risen insignificantly to around 21.41 times from about 21.41 times, signaling a steady valuation framework with only a minimal upward tweak.

Expansion into specialty pharmaceuticals and value-added services strengthens revenue quality, customer relationships, and recurring income streams.
Operational efficiency gains driven by automation and digitization support margin improvement and reinforce market leadership.
Regulatory pressures, industry consolidation, lower-margin generics, shifting healthcare access, and technology disruption all threaten McKesson's traditional revenue streams and long-term profit sustainability.

Catalysts

About McKesson

Provides healthcare services in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Growing demand for pharmaceuticals and medical supplies, fueled by an aging population and higher chronic disease rates, underpins accelerating prescription volume growth, which supports sustained top-line revenue expansion for McKesson.
Increasing adoption of specialty and oncology pharmaceuticals, alongside recent acquisitions (Core Ventures and PRISM Vision) that expand the provider network and service portfolio, are improving revenue mix quality and positioning the company for higher operating margins and earnings growth.
Investments in digitization, automation, and advanced analytics across distribution centers and logistics (e.g., automated picking systems, AI, robotics) are enhancing operational efficiency, driving measurable reductions in operating expenses and supporting long-term net margin improvement.
Expanding value-added services, such as pharmacy management, patient access/adherence solutions, and commercialization support for biopharma customers, allow for stronger customer relationships, greater recurring revenue streams, and improved revenue visibility.
Increasing complexity of the pharmaceutical supply chain (e.g., biosimilars, cold chain logistics, personalized medicine) disproportionately benefits large, sophisticated distributors like McKesson, enabling competitive market share gains and enhanced supply chain resiliency, contributing to both top-line and margin expansion.

McKesson Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming McKesson's revenue will grow by 8.2% annually over the next 3 years.
Analysts assume that profit margins will increase from 0.8% today to 1.1% in 3 years time.
Analysts expect earnings to reach $5.3 billion (and earnings per share of $46.25) by about September 2028, up from $3.2 billion today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.1x on those 2028 earnings, down from 27.7x today. This future PE is greater than the current PE for the US Healthcare industry at 21.0x.
Analysts expect the number of shares outstanding to decline by 2.01% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

McKesson Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Rising regulatory and governmental pressure on drug pricing and healthcare costs could compress McKesson's profit margins over the long term, as the company notes the dynamic and policy-driven environment and ongoing engagement with policymakers-potentially threatening both revenue growth and net margins.
Accelerating vertical integration and consolidation among drug manufacturers, payers, and pharmacy benefit managers (e.g., PBMs adopting in-sourcing strategies, "Caremark in-sourcing") may disintermediate traditional wholesalers, reducing McKesson's addressable market and putting sustained pressure on long-term revenues and operating profits.
Steady transition toward biosimilars and generics, which are highlighted as only "steady contributors" to earnings and usually deliver lower gross margins than branded drugs, may limit future profit opportunities and drag on overall net margin expansion over time.
Potential declines in healthcare access and rising uninsured rates (such as possible Medicaid cuts or "upward pressure on the uninsured rate") could negatively impact prescription and service volumes, ultimately reducing McKesson's long-term revenue base in its core wholesale business.
In the rapidly changing healthcare delivery ecosystem (including growth of digital-first and direct-to-consumer models), McKesson faces execution risk with slow adaptation to technological transformation-any lag in automation, digitization, or strategic innovation versus competitors could erode operating margins and earnings sustainability in the long run.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $788.571 for McKesson based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $830.0, and the most bearish reporting a price target of just $640.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $478.8 billion, earnings will come to $5.3 billion, and it would be trading on a PE ratio of 21.1x, assuming you use a discount rate of 6.8%.
Given the current share price of $705.55, the analyst price target of $788.57 is 10.5% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Boost McKesson Outlook Amid Strong Growth Guidance and Recent Valuation Adjustments