Does McKesson’s Stock Rally Reflect True Value After New Pharmacy Partnerships?

• Ever wondered if McKesson stock is priced for perfection right now, or if it might actually offer some hidden value for savvy investors?
• McKesson’s share price keeps climbing, with returns of 1.2% over the past week, 6.0% in the last month, and a striking 54.8% over the last year.
• Recent headlines highlight McKesson’s continued expansion in healthcare distribution and significant new partnerships with pharmacy networks. These developments help explain the strong momentum in the stock, fueling further investor interest.
• Currently, McKesson has a valuation score of 2 out of 6 based on key checks for undervaluation. This prompts a closer look at traditional and alternative valuation approaches for a smarter perspective on what this really means for investors.

McKesson scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: McKesson Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's intrinsic value by forecasting its future cash flows and discounting them back to the present, reflecting the value of those cash flows in today’s dollars.

For McKesson, the DCF model uses a 2 Stage Free Cash Flow to Equity approach. The company’s most recent twelve months’ Free Cash Flow stands at $5.7 billion. Analysts supply projections for the next five years, while further estimates up to 2035 are extrapolated.

Looking at the ten-year trajectory, analysts expect cash flow to rise from $4.8 billion in 2026 to $7.0 billion by the end of the decade. Simply Wall St’s model continues with moderate growth beyond that period.

Based on these projections, the DCF model calculates an intrinsic value for McKesson of $1,366 per share. This calculation suggests the stock is currently trading at a 40.6% discount compared to its intrinsic value, which may indicate meaningful potential upside for investors.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests McKesson is undervalued by 40.6%. Track this in your watchlist or portfolio, or discover 832 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for McKesson.

Approach 2: McKesson Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used measure for valuing profitable companies, as it relates a company’s share price to its earnings per share. For mature, consistently profitable businesses like McKesson, this makes the PE ratio especially useful for comparing the company's valuation both historically and against its competitors.

Typically, a higher PE ratio is justified when investors expect robust future earnings growth, perceive lower risks, or see strong profit margins. On the other hand, lower ratios may signal concerns over growth prospects or increased risk. Determining what’s "fair" is not just about industry norms; it also depends on unique company factors.

McKesson currently trades at a PE ratio of 31.9x. For context, the average PE for the healthcare industry is 21.2x, while McKesson’s peer group averages 24.9x. This suggests McKesson is priced at a premium relative to both the industry and its direct competitors.

Simply Wall St introduces the "Fair Ratio," a proprietary measure that assesses the PE that McKesson deserves based on its earnings growth, market cap, profitability, risk profile, and sector. Rather than blanket peer or industry averages, the Fair Ratio offers a more tailored benchmark that accounts for McKesson’s unique strengths and challenges.

The Fair Ratio for McKesson is calculated at 31.4x, almost identical to its current market PE of 31.9x. This close alignment signals that the stock is trading at about its fair value, given its growth outlook, profits, and risks.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your McKesson Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple, dynamic way to define your own story about McKesson by connecting your expectations for its future performance to a financial forecast and an estimated fair value. Rather than just relying on a single number, Narratives let you express what you believe will drive McKesson’s future, such as growth in specialty services, operational efficiency, or industry risks, and show how these assumptions impact its fair value today.

Anyone can create and share a Narrative on the Simply Wall St Community page, making it an accessible and interactive tool used by millions of investors. Narratives also help you make smarter buy or sell decisions by continually comparing your Fair Value to the latest share price as new information like earnings updates or industry news becomes available.

For example, one investor’s Narrative for McKesson might emphasize robust expansion into specialty pharmaceuticals and higher-margin services, resulting in a bullish fair value above $830 per share. Another could focus on regulatory pressures and margin concerns, suggesting a more cautious outlook near $640 per share. Narratives put you in control and let you invest in line with your own outlook as market conditions evolve.

Do you think there's more to the story for McKesson? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com