Investment Thesis
This is going to be a brief article explaining why investors should consider an investment in McKesson (NYSE:MCK) as a speculative buy.
For the past 5 years, the company has been caught in a storm of bad news and that is has been reflected in their share price performance, reaching a high of $240 in 2015 to a low of $110 at the beginning of 2019, while trading sideways throughout last year.
There are lots of unknowns and uncertainties right now going around McKesson. Most notable headwinds are the pending Opioid litigation, the amount of disruption Amazon can cause by entering the pharmaceutical distribution business and deflationary generic drug prices.
In November of last year, Citron Research published a short report on McKesson. The bear thesis sets the downside at $80, or 38% lower at recent prices. The report suggests that recent court decision ordering Johnson and Johnson to pay initially $570M (with an Oklahoma judge lowering the fine by 107M) for the harm caused to the state of Oklahoma related to the opioid crisis and tried under the legal theory of public nuisance, which the author argues could be also be used against McKesson. If that is the case, the short report estimates possible fines of $100B.
Still, there is a general consensus about the importance of McKesson in the supply chain, and the company has the resources to sustain a highly probable huge fine. Once dust settles and business as usual resumes at McKesson, we think there is a good risk/reward opportunity for long-term investors.
Quick Overview
McKesson is one of the three biggest pharmaceutical distributors in the U.S, sharing the market with competitors AmerisourceBergen and Cardinal Health. The three companies controlling 90% of the distribution market in the U.S.
They are also within the top
