Goldman Sachs Comments On McKesson 4QFY11 Results

According to Goldman Sachs, McKesson MCK reported 4QFY11 EPS of $1.66 (excluding one-time items), which was above its/consensus estimate of $1.58/$1.60. Goldman Sachs said that the quarter benefited $0.23 from a lower tax rate as operating margins on both businesses fell short of expectations (meaningfully in HCIT). “While we view the quarterly results as somewhat disappointing, we were encouraged by MCK's introduction of FY2012 guidance of $5.55-$5.75 (mid-point of $5.65 vs. Street at $5.62), which we view as a reasonable starting range. Most importantly, MCK updated its long-term operating margin goals where it now targets 200-250 bp for the Distribution Solutions segment—the upper-end is significantly higher than current levels and highlights the potential upside driven by generics and specialty. Not to be overlooked, we believe the reset expectations for MCK's HCIT segment, where prospects were tempered, will go a long way to removing the quarter-to-quarter overhang experienced in FY11. Net-net, we believe shares could be volatile near-term but ultimately see the long-term growth story intact. Maintain Buy rating and our 12-month price target rises to $92 (from $88) on quarterly model roll-forward.” McKesson closed yesterday at $83.13.