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.

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.

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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