McKesson (NYSE:MCK) is well positioned in its industry that experiences slow but steady growth. The stock has the defensive characteristics that would go great if the outlook for economy is turbulent or it had significant upside because of short term mispricing by the market. However, neither is the case so I suggest that investors look elsewhere for exposure to healthcare. Below is a in depth look at the valuation metrics and top holders of the stock.
Valuation: McKesson's trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the three valuation metrics compared to their 5 year averages. McKesson's current P/B ratio is 2.7 and it has averaged 2.4 over the past 5 years with a high of 3 and low of 1.6. McKesson's current P/S ratio is 0.2 and it has averaged 0.2 over the past 5 years with a high of 0.2 and low of 0.1. McKesson's current P/E ratio is 15.9 and it has averaged 16 over the past 5 years with a high of 21.2 and low of 11.9.
Price Target: The consensus price target for the analysts who follow McKesson is $96. That is upside of 18% from today's stock price of $81.34 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: McKesson is currently trading at about $81 a share with analysts expecting EPS of $7.1 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 11.5. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. AmerisourceBergen (NYSE:ABC) is currently trading at about $39 a share with analysts expecting EPS of $3.17 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 12.2. Cardinal Health (NYSE:CAH) is currently trading at about $42 a share with analysts expecting EPS of $3.54 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 11.8. The mean forward P/E of McKesson's competitors is 12 which suggests that McKesson is fairly valued relative to its publically traded competitors.
Top Stock Holders: The top two funds that own McKesson are Vanguard Health Care Inv, which owns 9.8 million shares or 3.99% of the shares outstanding, and T. Rowe Price Growth Stock, which owns 4.4 million shares or 1.78% of the shares outstanding. The top two institutions that own McKesson are T. Rowe Price Associates, Inc., which owns 20.2 million shares or 8.25% of the shares outstanding, and Fidelity Management and Research Company, which owns 15.7 million shares or 6.4% of the shares outstanding.
Price Action: McKesson is up 3.7% over the past year, underperforming the S&P 500, which is up 3.7%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $79.16 and above its 200 day moving average, which sits at $77.74.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.