Contrasting CVS Health Corporation (CVS) & McKesson Corporation (MCK)

CVS Health Corporation (NYSE: CVS) and McKesson Corporation (NYSE:MCK) are both large-cap retail/wholesale companies, but which is the superior stock? We will compare the two businesses based on the strength of their profitability, risk, institutional ownership, valuation, earnings, analyst recommendations and dividends.

Insider and Institutional Ownership

82.3% of CVS Health Corporation shares are held by institutional investors. Comparatively, 86.6% of McKesson Corporation shares are held by institutional investors. 0.6% of CVS Health Corporation shares are held by company insiders. Comparatively, 1.2% of McKesson Corporation shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Profitability

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

Net Margins Return on Equity Return on Assets
CVS Health Corporation 2.93% 17.47% 6.58%
McKesson Corporation 2.42% 25.76% 4.34%

Dividends

CVS Health Corporation pays an annual dividend of $2.00 per share and has a dividend yield of 2.5%. McKesson Corporation pays an annual dividend of $1.12 per share and has a dividend yield of 0.8%. CVS Health Corporation pays out 39.9% of its earnings in the form of a dividend. McKesson Corporation pays out 5.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. CVS Health Corporation has raised its dividend for 9 consecutive years and McKesson Corporation has raised its dividend for 4 consecutive years. CVS Health Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares CVS Health Corporation and McKesson Corporation’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
CVS Health Corporation $180.79 billion 0.44 $12.65 billion $5.01 15.75
McKesson Corporation $199.85 billion 0.15 $3.94 billion $22.42 6.55

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

Risk and Volatility

CVS Health Corporation has a beta of 0.91, indicating that its share price is 9% less volatile than the S&P 500. Comparatively, McKesson Corporation has a beta of 1.13, indicating that its share price is 13% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent ratings and price targets for CVS Health Corporation and McKesson Corporation, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
CVS Health Corporation 0 7 12 0 2.63
McKesson Corporation 1 8 7 0 2.38

CVS Health Corporation presently has a consensus price target of $91.57, indicating a potential upside of 16.07%. McKesson Corporation has a consensus price target of $169.50, indicating a potential upside of 15.44%. Given CVS Health Corporation’s stronger consensus rating and higher possible upside, analysts plainly believe CVS Health Corporation is more favorable than McKesson Corporation.

Summary

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

CVS Health Corporation Company Profile

CVS Health Corporation, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Pharmacy Services Segment provides a range of pharmacy benefit management (PBM) solutions to its clients. As of December 31, 2016, the Retail/LTC Segment included 9,709 retail locations (of which 7,980 were its stores that operated a pharmacy and 1,674 were its pharmacies located within Target Corporation (Target) stores), its online retail pharmacy Websites, CVS.com, Navarro.com and Onofre.com.br, 38 onsite pharmacy stores, its long-term care pharmacy operations and its retail healthcare clinics.

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.

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