Critical Analysis: McKesson Corporation (MCK) & Pharmerica Corporation (PMC)

Pharmerica Corporation (NYSE: PMC) and McKesson Corporation (NYSE:MCK) are both medical companies, but which is the better investment? We will compare the two companies based on the strength of their institutional ownership, analyst recommendations, risk, valuation, earnings, dividends and profitability.

Analyst Ratings

This is a summary of recent ratings for Pharmerica Corporation and McKesson Corporation, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Pharmerica Corporation	1	1	1	0	2.00
McKesson Corporation	1	8	7	0	2.38

Pharmerica Corporation presently has a consensus price target of $29.25, suggesting a potential upside of 0.69%. McKesson Corporation has a consensus price target of $169.50, suggesting a potential upside of 16.10%. Given McKesson Corporation’s stronger consensus rating and higher probable upside, analysts plainly believe McKesson Corporation is more favorable than Pharmerica Corporation.

Volatility & Risk

Pharmerica Corporation has a beta of 0.92, suggesting that its share price is 8% less volatile than the S&P 500. Comparatively, McKesson Corporation has a beta of 1.13, suggesting that its share price is 13% more volatile than the S&P 500.

Profitability

This table compares Pharmerica Corporation and McKesson Corporation’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Pharmerica Corporation	1.05%	10.94%	4.84%
McKesson Corporation	2.42%	25.76%	4.34%

Insider and Institutional Ownership

94.3% of Pharmerica Corporation shares are owned by institutional investors. Comparatively, 86.6% of McKesson Corporation shares are owned by institutional investors. 5.0% of Pharmerica Corporation shares are owned by insiders. Comparatively, 1.2% of McKesson Corporation shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Dividends

McKesson Corporation pays an annual dividend of $1.12 per share and has a dividend yield of 0.8%. Pharmerica Corporation does not pay a dividend. McKesson Corporation pays out 5.0% of its earnings in the form of a dividend. Pharmerica Corporation has raised its dividend for 4 consecutive years.

Valuation and Earnings

This table compares Pharmerica Corporation and McKesson Corporation’s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	EBITDA	Earnings Per Share	Price/Earnings Ratio
Pharmerica Corporation	$2.21 billion	0.41	$133.00 million	$0.74	39.26
McKesson Corporation	$199.85 billion	0.15	$3.94 billion	$22.42	6.51

McKesson Corporation has higher revenue and earnings than Pharmerica Corporation. McKesson Corporation is trading at a lower price-to-earnings ratio than Pharmerica Corporation, indicating that it is currently the more affordable of the two stocks.

Summary

McKesson Corporation beats Pharmerica Corporation on 10 of the 17 factors compared between the two stocks.

Pharmerica Corporation Company Profile

PharMerica Corporation is an institutional pharmacy services company. The Company services healthcare facilities, provides pharmacy management services to hospitals and specialty infusion services to patients outside a hospital setting, and offers the national oncology pharmacy in the United States. Its segments include institutional pharmacy, which provides pharmacy products and services to residents and patients in skilled nursing facilities, nursing centers, assisted living facilities, hospitals and other long-term alternative care settings; specialty infusion services, which provides specialty infusion services focused on providing pharmaceutical products and clinical services to patients in client facilities, hospice and outside of hospital or nursing home settings, and specialty oncology pharmacy, which provides dispensing of oncology drugs, care management and other related services to patients, oncology practices and hospitals.

McKesson Corporation Company Profile

McKesson Corporation (McKesson) is engaged in delivering pharmaceuticals, medical supplies and healthcare information technology. The Company operates through two segments: McKesson Distribution Solutions and Technology Solutions. The McKesson Distribution Solutions segment distributes drugs and equipment, and health and beauty care products across North America and internationally. The Distribution Solutions segment provides pharmaceutical solutions for biotech and pharmaceutical manufacturers, and practice management, technology, clinical support and business solutions to oncology and other specialty practices operating in the community setting. The Technology Solutions segment delivers clinical, patient care, financial, supply chain and strategic management software solutions, as well as connectivity, outsourcing and other services. Its McKesson Health Solutions portfolio includes ClarityQx, which is a payment technology.