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On Friday, pharmaceutical giant McKesson Corp MCK experienced a 24% drop in their stock price, down to $124.57, as of 3:15pm central. This comes after the release of their 2nd quarter fiscal 2017 earnings.
MCK reported revenue of $49.96B and earnings of $2.94 per share. These figures are lower than expectations, which projected earnings of $3.04 per share and revenue of $51.2B. MCK CEO John Hammerger explained how the company needed to lower drug prices in order to reciprocate competition. This explains the sudden drop in stock price, as investors displayed uncertainty in MCK’s future earnings.
Hammerger displayed annoyance while discussing competition and the drop in prices, saying, “What we began to see more recently is competitive activity that is broader than our original expectations, more aggressive, and across several areas of our U.S. pharmaceutical business. When a competitor significantly undercuts our existing pricing, we are compelled to respond.”
The hope for MCK is that investors will see value in their impressive track record. Historically, the company has been able to post notable growth on both revenue and EPS, and recently, McKesson separated its technology sector from its other businesses. According to Zacks’ MCK analysis summary page, McKesson “has been actively pursuing deals and acquisitions to drive growth. The separation of its Technology business into a new healthcare information technology that will enable the company to concentrate on the primary pharmaceuticals distribution business.”
This explains why Zacks Rank had Value, Growth and VGM all rated at ‘A’ as of October 27, 2016. The company is showing growth and focus on their most profitable sector. However, with its current standing, it’s clear to why the stock was downgraded from a #3 (Hold) to a #4 (Sell) on the Zacks Rank.
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