McKESSON CORPORATION (MCK): what the price assumes
In the published model solve dated 2026-Q2, anchored at $893.39, McKESSON CORPORATION (MCK) is priced for -3.1% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-03.
Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/MCK
Headline
| Field | Value |
|---|---|
| Ticker | MCK |
| Company | McKESSON CORPORATION |
| Current price | $893.39/sh |
| Composition | North American Pharmaceutical 83% / Oncology & Multispecialty 12% / Prescription Technology Solutions 1% / Medical-Surgical Solutions 3% / Other 0% |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin (value-band context) | 0.2% |
| Operating margin today | 1.6% |
| Margin compression (value-band) | -1.4pp |
| Implied growth | -3.1% |
| Multiple paid | 17x operating income |
The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.
Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage.
How unusual the bet is: within-range (limited comparison data)
| Reference | Value |
|---|---|
| vs own history | -0.56σ |
| cohort percentile (of 115 peers) | 30 |
Valuation X-Ray
The price is supported by earnings-power value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | — | 0 | — |
| Earnings | 1.19x | 2 | expensive |
| Relative | — | 0 | — |
| Growth | — | 0 | — |
Families that justify the price: Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.4%); the inversion above states its own rate.
Per-Model Detail (n=2)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $1673.36 | 0.53x | no | FCF base $6.8B, growth 9% (input: historical growth), terminal g 4.0%, WACC 8.4%, 6yr projection |
| DCF Exit Multiple | Growth | $1245.84 | 0.72x | no | Exit EV/EBITDA: 13.2x / 15.2x / 17.2x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | — | — | no | P/E 18x (static sector reference · 2026-04), scenarios: 14.9x / 18.0x / 21.1x (bear / base = reference held flat / bull), EV/EBITDA 12x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | — | — | no | — |
| Two-Stage Excess Return | Asset | — | — | no | — |
| Discounted Future Market Cap | Growth | $863.16 | 1.04x | no | Rev $411.0B, growth 9% (input: historical growth; tapered), Terminal P/S: 0.2x / 0.3x / 0.3x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $447.36 | 2.00x | no | EPS $37.28, growth 1% (input: historical EPS growth), PEG=20.86 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $358.06 | 2.50x | no | Normalized EBIT (5y avg op income, one-time charges added back) $4.60B × (1−21%) / WACC 8.4% → EPV (no growth) |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | — | — | no | — |
| EV/EBITDA Relative | Relative | — | — | no | EBITDA $7.26B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $546.09 | 1.64x | yes | FCF $6494.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $1202.90 | 0.74x | yes | EPS $37.28 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | — | — | no | Revenue $410.98B × sector P/S 2.5x |
| PEG Fair Value | Relative | $1398.00 | 0.64x | no | EPS $37.28 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $403.03 | 2.22x | no | EPS $37.28 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Economic-Unit Decomposition (Sum Of The Parts)
One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.
| Unit | Role | Valuation basis | Revenue | Reported profit | Value evidence | Status |
|---|---|---|---|---|---|---|
| North American Pharmaceutical | operating | enterprise | $336.7b | $3.7b operating-income | withheld | unresolved no unit value |
| Oncology & Multispecialty | operating | enterprise | $48.4b | $1.1b operating-income | withheld | unresolved no unit value |
| Prescription Technology Solutions | operating | enterprise | $5.8b | $1.0b operating-income | withheld | unresolved no unit value |
| Medical-Surgical Solutions | operating | enterprise | $11.5b | $938.0m operating-income | withheld | unresolved no unit value |
| Other | operating | enterprise | $1.0b | $590.0m operating-income | withheld | unresolved no unit value |
No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.
Solvency
| Field | Value |
|---|---|
| Net debt | $7.2b |
| Net debt / NOPAT (after-tax) | 1.40x |
| Net debt / operating income (pre-tax) | 1.11x |
| Interest coverage | 23.6x |
| Share count CAGR (buyback) | -4.9% |
| Burning cash | no |
Bullet Takeaways
McKesson compounds earnings steadily off razor-thin distribution margins. Fiscal 2026 adjusted EPS rose 18% to $39.11, and management guided fiscal 2027 to $43.80 to $44.60, another 12% to 14% increase.
The price does not require growth to be justified. At $751.42 (as of June 27, 2026) the embedded assumption is essentially flat operating income, supported by earnings-power and peer multiples, which makes the consistent double-digit EPS growth the upside.
The governance overhang is the opioid liability. McKesson is a defendant in extensive controlled-substance litigation and is paying its share of a roughly $21 billion industry settlement over a decade, a steady drag on the free cash flow that funds its buybacks.
Bull Case
The earnings trajectory is the clearest reason to own McKesson, because the direction has been relentlessly upward and the drivers are durable. Fiscal 2026 adjusted EPS rose 18% to $39.11 on consolidated revenue of $403.4 billion, up 12%, with adjusted operating profit up 15% to $6.5 billion. The fourth quarter continued the pattern, with adjusted EPS up 16% to $11.69. Management then guided fiscal 2027 to adjusted EPS of $43.80 to $44.60, a further 12% to 14% increase. For a business this large, sustained mid-to-high-teens earnings growth is unusual, and it comes from a structurally advantaged position at the center of US drug distribution, where scale and logistics density create a moat that is nearly impossible to replicate.
The mix is shifting toward the right tailwinds. GLP-1 distribution revenue reached $53 billion for the year, up 27%, a high-volume stream that rides one of the strongest secular trends in healthcare. On the higher-margin side, McKesson is building out oncology and multispecialty through the Florida Cancer Specialists acquisition, deepening a services business that earns better economics than pure distribution. The 10-K describes the technology and services layer, including "McKesson Pharmacy Systems, MacroHelix, and Supply Logix" that help customers "drive greater efficiencies" and comply with "complex government regulations" (FY2025 10-K, accession 0000927653-25-000036), the kind of embedded software that raises switching costs above a commodity logistics business.
The capital structure and return profile amplify the earnings growth. McKesson runs at a low net-debt-to-operating-income ratio of about 0.83 with interest coverage near 25 times, and it returns cash aggressively, shrinking the share count roughly 5% a year, with buybacks adding $1.23 per share to earnings growth in fiscal 2026 and a fresh $2.25 billion authorization. The price embeds essentially no growth, around negative 0.2% implied, so the bar to clear is minimal: a business growing adjusted EPS 12% to 14% while the price assumes flat operating income is a wide gap between expectation and delivery, supported by earnings-power and relative-multiple value.
Bear Case
The governance and capital-allocation question that hangs over McKesson is the opioid liability, and it is not a closed chapter. The 10-K states plainly that "the Company and its affiliates have been sued as defendants in many cases asserting claims related to distribution of controlled substances, such as opioids" alongside other wholesalers (FY2025 10-K, accession 0000927653-25-000036). McKesson is paying its share of a roughly $21 billion industry settlement over more than a decade, a fixed claim on the free cash flow that funds the buybacks the bull case relies on. Every dollar paid to opioid claimants is a dollar not returned to shareholders, and the reputational and regulatory tail risk of being a central defendant in the opioid crisis is a structural feature of this business, not a one-time event.
The capital allocation itself deserves scrutiny. McKesson has bought back so much stock that book equity is negative, which is why the asset-based valuation methods do not apply at all. Aggressive, debt-and-cash-funded repurchases manufacture per-share growth and were responsible for $1.23 of the fiscal 2026 EPS gain, but they also leave the company with no tangible equity cushion and a model that depends on uninterrupted cash generation to service both the debt and the settlement. When a large share of earnings growth comes from shrinking the denominator rather than growing the business, the quality of that growth is lower than the headline suggests.
The economics underneath are thin and exposed to mix. Distribution operates on a razor-thin operating margin of about 1.5%, so the absolute dollars depend on enormous volume, and as high-cost, low-margin branded drugs like GLP-1s take a larger share of the mix, the company must keep cutting costs through automation just to hold margin. The Q4 fiscal 2026 revenue of $96.3 billion actually missed the FactSet estimate of $101.35 billion, a reminder that the top line can disappoint even as EPS beats on buybacks and cost control. A thin-margin distributor carrying a multi-billion-dollar opioid obligation, with negative book equity from buybacks and growth partly engineered through share count, is more fragile than its steady EPS line implies, and the price, while undemanding on growth, offers little protection if the settlement cash drag or a mix shift pressures the cash flow that holds the whole structure together.
Valuation
McKesson is valued on its earnings power, the right lens for a thin-margin distributor whose value is in volume and consistency rather than assets. Against the $751.42 price, the earnings-power and relative-multiple families support the price, while the asset-based and growth-DCF families do not apply, the former because buybacks have driven book equity negative. The blended X-ray figure does not resolve to a number below the price from a single applicable method, so the read leans on the earnings and peer-multiple support. The priced-in characterization is within range and value and earnings-supported, not a growth bet.
The priced-in math is strikingly undemanding. The embedded assumption is essentially flat operating income, around negative 0.2% implied growth, against a current operating margin of 1.5% that is normal for distribution. In other words, the price does not require McKesson to grow at all to be justified; it is supported by the current earnings stream and how peer distributors trade. That low bar is the heart of the value case, because the company is in fact guiding to 12% to 14% adjusted EPS growth, well above the flat assumption embedded in the price.
The balance sheet is sound on a leverage basis even with negative book equity. Net debt of about $5.17 billion sits at roughly 0.83 times operating income with interest coverage near 25 times, comfortable for a stable cash generator, though the opioid settlement is a fixed off-balance-sheet-style claim on future cash. The honest read is that the valuation is reasonable-to-attractive on earnings, with the caveat that the asset frame is unusable because of the buyback-driven equity deficit. An investor here is underwriting that the GLP-1 and oncology mix sustains the double-digit EPS growth, that buybacks continue, and that the opioid cash drag stays manageable, in exchange for a price that asks for no growth at all.
Catalysts
Fiscal 2026 results (year ended March 31, 2026, reported May 2026) showed the earnings engine intact. Full-year revenue rose 12% to $403.4 billion, adjusted operating profit grew 15% to $6.5 billion, and adjusted EPS rose 18% to $39.11. The fourth quarter delivered adjusted EPS up 16% to $11.69, though revenue of $96.3 billion missed the FactSet estimate of $101.35 billion. Management guided fiscal 2027 to adjusted EPS of $43.80 to $44.60, a 12% to 14% increase, and announced a $2.25 billion buyback. The trajectory of GLP-1 distribution and oncology growth against the thin distribution margin is the key near-term catalyst.
The portfolio reshaping is the structural catalyst. McKesson is building oncology and multispecialty through the Florida Cancer Specialists acquisition and is widely expected to pursue additional multispecialty networks, while analysts point to a potential Medical-Surgical spin-off as a re-rating event that could let the market apply a higher pure-play pharmaceutical and technology multiple to the remaining company. GLP-1 distribution revenue of $53 billion, up 27%, is the dominant volume tailwind, with the offsetting need to automate costs as the branded mix grows.
The opioid settlement is the standing watch item. McKesson continues to pay its share of the roughly $21 billion industry settlement over more than a decade, a steady drag on free cash flow, and remains a defendant in extensive controlled-substance litigation (FY2025 10-K, accession 0000927653-25-000036). The catalysts that would move the stock are continued double-digit EPS growth, a med-surg separation, and oncology expansion; the risks are settlement-related cash drag, a revenue miss from mix shift, and the lower quality of buyback-driven earnings growth.
Peer Cohorts (Per Segment, With Filing Citations)
North American Pharmaceutical / Oncology & Multispecialty +2 more (reported)
- COR (CENCORA, INC.)
- FY2025 10-K: …research and development of biotechnology and other specialty pharmaceutical drugs will provide opportunities for the continued growth of our specialty pharmaceuticals business. Use of Generic and Biosimilar Pharmaceuticals. A number of patents for widely used brand-name pharmaceutical products will continue to…
- FY2025 10-K: AC") as the reference price. We sell brand-name pharmaceutical products to many of our customers using WAC as the reference price and to other customers based on their negotiated contract price. If manufacturers change their pricing policies or practices with regard to WAC or if prices charged by manufacturers do not…
- CAH (Cardinal Health, Inc.)
- FY2025 10-K: …the impact of the OptumRx contracts expiration. The Pharma segment generics program includes, among other things, the impact of generic pharmaceutical product launches, customer volumes, pricing changes, the Red Oak Sourcing, LLC venture ("Red Oak Sourcing") with CVS Health Corporation ("CVS Health"), and generic…
- FY2025 10-K: …in which management evaluates performance for purposes of allocating resources and assessing performance combined with the nature of the individual business activities. Our Pharma segment distributes branded and generic pharmaceutical, specialty pharmaceutical, and over-the-counter healthcare and consumer products in…
- HSIC (HENRY SCHEIN, INC.)
- FY2025 10-K: …the cost of prescription drugs. At the federal level, section 1927 of the Social Security Act sets forth Average Sales Price (ASP) reporting requirements for manufacturers (including repackagers and relabelers) and requires that manufacturers provide CMS with pricing information for their Part B-covered drugs no…
- FY2025 10-K: , under the Controlled Substances Act, to obtain and renew annually registrations for our facilities from the United States Drug Enforcement Administration ("DEA") permitting us to handle controlled substances. We are also subject to other statutory and regulatory requirements relating to the storage, sale, marketing,…
Medical-Surgical Solutions (reported)
- HSIC (HENRY SCHEIN, INC.)
- FY2025 10-K: …Leveraging our broad array of assets and capabilities, we offer solutions to address these new markets. In the medical business, we have expanded to serve customers located in settings outside of the traditional office, such as urgent care clinics, retail, occupational health and home health settings. As health care…
- FY2025 10-K: …and serve our customers through multiple brands and multiple channels addressing all segments of the market. By investing in dedicated endo-specific competencies and resources to support our different sales channels, we are successfully marketing our products and brands in over 90 countries. • Orthopedics . We…
- CAH (Cardinal Health, Inc.)
- FY2025 10-K: …pharmaceutical, and over-the-counter healthcare and consumer products in the United States. This segment also provides services to pharmaceutical manufacturers and healthcare providers for specialty pharmaceutical products; provides pharmacy management services to hospitals and operates a limited number of…
- FY2025 10-K: …and Canada. This segment also assembles and sells sterile and non-sterile procedure kits. The GMPD segment, through its Wavemark division, also provides an automated technology platform for inventory management. Other Operating Segments Our Nuclear and Precision Health Solutions operating segment operates nuclear…
- COR (CENCORA, INC.)
- FY2025 10-K: …and various other products to customers in both the companion animal and production animal markets. It also offers its customers a variety of value-added services, including its e-commerce platform, technology management systems, pharmacy fulfillment, inventory management system, equipment procurement consultation,…
- FY2025 10-K: …both reportable segments. The U.S. Healthcare Solutions segment grew its revenue by $25.6 billion, or 9.7%, from the prior fiscal year primarily due to overall market growth largely driven by unit volume growth, including increased sales of specialty products to health systems and physician practices and increased…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.