MCKESSON CORP MCK
January 11, 2011 - 11:02pm EST by
max318
2011 2012
Price: 74.47 EPS $4.87 $5.74
Shares Out. (in M): 262 P/E 15.3x 13.0x
Market Cap (in $M): 19,511 P/FCF 14.0x 11.7x
Net Debt (in $M): 1,389 EBIT 2,073 22,367
TEV ($): 20,900 TEV/EBIT 10.0x 8.8x

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Description

MCK is one of the big 3 drug wholesaler / distribution co's (ABC, MCK, & CAH).  An MCK investment offers protected downside and 20% return upside to a reasonable base case scenario.  MCK trades at a slight discount to CAH (it is in line with ABC) but has underappreciated upside to #'s because of its accretive acquisition of US Oncology and earnings growth from margin recovery in its hospital IT business ("HCIT").  HCIT deserves to trade at a higher multiple than the distribution business and is currently suffering from a cyclical downturn in Hospital CapEx.  There is no current management desire to spin HCIT, although this is an increasing demand of MCK shareholders.  HCIT would be the largest public healthcare IT business, and even if it traded at a discount to better-positioned comps such as CERN and MDRX, achieving a reasonable 9.5x EBITDA multiple would add $3 / share to the MCK price target.

MCK's EBIT growth tailwind should come from:  1)  the accretive USON acquisition, 2)  the strong 2011-2013 generics conversion cycle, and 3) recovery of the HCIT business.  Street estimates are likely too conservative given these tailwinds (see estimates bridge and variance below).  Management is shareholder friendly and tends to guide conservatively (note the summer 2010 ASR and MCK's 5 year tradition of linking bonuses to beating EPS guidance).

The generics cycle benefits all drug distributors as generic EBIT $'s per pill sold can be 3-5x branded EBIT $'s per pill.  Drug distributors get very thin EBIT margins (0.5% to 1.5%) on their branded drug sales to their drugstore customers, but can earn 5-15% margins on generics.  During the exclusivity period (1st year of generic sales) is when the EBIT $ accretion effect is the highest (price compression from multi-source generic competition has not yet compressed sales $'s by 50%+ per pill).  Distributors continue to earn higher EBIT $'s per pill relative to branded when the drug transitions to a multi-source generic (see transition model below).  It is also relevant to MCK that the 2011 generic conversion schedule is heavily weighted towards specialty (oncology) drugs.  MCK is now a close 2nd to ABC in specialty drug market share after the U.S. Oncology acquisition.  Because of USON, MCK will show a relatively stronger benefit from this coming generic cycle vs past ones (2008, 2006, 2002).  In the past, drug distributors multiples traded on par with PBM multiples in strong generics cycles (they are now at a significant discount).  The 2.5x EBITDA multiple gap between distributors and PBMs should start to narrow, especially as distributors continue to repurchase shares as they benefit from the freeing of working capital $'s in the transition to higher % generic penetration (could be $1B of extra cash to MCK over the next 2-3 years).

MCK, in particular, should also benefit from a 2011 trend in healthcare of analyst and company reporting towards adjusted EPS #'s (excluding non cash amortization of intangibles resulting from acquisitions).  MCK has hinted that they may switch to this reporting method in 2011 (note that MHS has switched to this approach and receives a 15x multiple on adjusted EPS).  See Lazard's recent note ranking MCK as near the top in divergence between GAAP EPS and adjusted EPS (50c effect).

MCK CEO John Hammergren has hit the tape with significant stock sales recently, but he still has significant underlying options exposure.  Hammergren is shareholder friendly ($1.5B of buybacks in the last 12 months), and he has successfully restored MCK's credibility after its large and extremely overpriced acquisition of HBOC 11 years ago.  Hammergren was facing significant option expirations in 2010 (and tax bills) based on incentive comp awards from his 2001 start as CEO. 

 

3/12 Price Targets:

     
   

MCK Cash 3/13 EPS

 
 

$6.15

$6.45

$6.75

$6.92

11x

$67.65

$70.95

$74.25

$76.12

12x

$73.80

$77.40

$81.00

$83.04

13x

$79.95

$83.85

$87.75

$89.96

14x

$86.10

$90.30

$94.50

$96.88

15x

$92.25

$96.75

$101.25

$103.80

 

Price

$74.47

                           

Shrs Out

262.0

                           

Mkt Cap

$19,511

                           

   Total Debt

$2,279

                           

Adj Debt for USON Acq

$3,979

                           

   Cash

$3,050

                           

Adj Cash for USON Acq

$2,590

                           

Net Debt

$1,389

                           

Adj EV

$20,900

                           
                               
         

 

Bridge to FY 3/12:

   

 

Bridge to FY 3/13:

   

 

         

 

   

Generic

Organic

 

   

Generic

Organic

 

         

 

USON

HCIT

Cycle

Growth

 

USON

HCIT

Cycle

Growth

 

 

FY 3/2007

FY 3/2008

FY 3/2009

FY 3/2010

FY 3/2011

9 Mths

Grwth

Effect

 

FY 3/2012

   

Effect

 

FY 3/2013

Revenues

$92,977

$101,703

$106,632

$108,702

$112,396

$2,888

$138

-$3,017

$4,496

$116,900

$150

$150

-$3,541

$4,676

$118,335

   Street

       

$111,483

       

$116,858

       

$118,904

COGS

$88,645

$96,694

$101,254

$103,026

 

       

 

       

 

Gross Profit

$4,332

$5,009

$5,378

$5,676

 

       

 

       

 

   % Sales

4.7%

4.9%

5.0%

5.2%

 

       

 

       

 

SG&A

$3,074

$3,536

$3,689

$3,688

 

       

 

       

 

   % Sales

3.3%

3.5%

3.5%

3.4%

 

       

 

       

 

EBIT

$1,258

$1,473

$1,689

$1,988

$2,073

$140

$45

$26

$83

$2,367

$23

$38

$6

$95

$2,529

   % Sales

1.4%

1.4%

1.6%

1.8%

1.9%

       

2.0%

       

2.1%

   Street

       

$2,037

       

$2,243

       

$2,467

Net Int Expense

-$4

$53

$113

$171

$162

       

$162

       

$162

Affiliate / Non Op Inc

$29

$32

$20

$10

$10

       

$10

       

$10

PreTax Inc

       

$1,901

       

$2,195

       

$2,357

Tax Rate

25.4%

32.1%

22.7%

32.2%

32.5%

       

32.5%

       

32.5%

Tax Expense

       

$618

       

$713

       

$766

Net Income

$913

$990

$823

$1,263

$1,283

       

$1,482

       

$1,591

   Street

       

$1,267

       

$1,376

       

$1,508

EPS

$2.89

$3.31

$3.97

$4.58

$4.87

       

$5.74

       

$6.41

   Street

       

$4.83

       

$5.46

       

$6.22

Shares Repurch, $750M/yr

       

 

       

10.4

       

10.0

Avg Shares Out

316.0

305.0

298.0

279.0

263.5

       

258.3

       

248.1

Acq Adj "Cash EPS"

       

$5.21

       

$6.22

       

$6.92

   USON Amort Aft Tax

       

$13

       

$51

       

$51

   Stk Cmp (Don't Add Back)

 

$60

$91

$99

$114

       

 

       

 

   Intangible Amort AT

       

$77

       

$75

       

$75

   Acq Adj "Cash Net Income"

       

$1,373

       

$1,607

       

$1,716

         

 

       

 

       

 

EBITDA

$1,553

$1,844

$2,130

$2,462

$2,581

$218

$45

$26

$83

$2,925

$23

$38

$6

$95

$3,042

   Street

       

$2,545

       

$2,800

       

$2,980

EBITDA - CapEx

$1,427

$1,649

$1,935

$2,263

$2,120

       

$2,545

     

 

$2,662

FCF (NI + D&A - CapEx)

$1,082

$1,166

$1,069

$1,538

$1,366

       

$1,659

       

$1,724

CapEx

-$126

-$195

-$195

-$199

-$425

       

-$380

       

-$380

D&A

$295

$371

$441

$474

$508

       

$558

       

$513

                               

Multiples

                             

EV / EBITDA

     

8.5x

8.1x

       

7.1x

       

6.9x

EV / EBITDA - CapEx

     

9.2x

9.9x

       

8.2x

       

7.9x

EV / EBIT

     

10.5x

10.1x

       

8.8x

       

8.3x

P / E

     

16.3x

15.3x

       

13.0x

       

11.6x

Cash P / E

     

 

14.3x

       

12.0x

       

10.8x

                               

Growth

                             

Sales Grwth %

 

9%

5%

2%

3%

       

4%

       

1%

EBIT Grwth %

 

17%

15%

18%

4%

       

14%

       

7%

 

 

 

 

 

 

 

 

 

             

Gen Conv Effect % of Branded

Year 1

Year 2

                         

Rev

40%

18%

 

70% conversion ratio for MCK.

                 

EBIT (180 day exclusivity)

255%

115%

                         
       

FY 3/09

FY 3/10

FY 3/11

FY 3/12

FY 3/13

             

UBS Cal Yr Estimates of Branded $ Going Generic

   

$13,000

$16,000

$13,750

$26,750

$27,500

             

MCK Effect (Assume FY10 is 75% 2011 Wtd)

   

$2,056

$2,175

$2,175

$4,231

$4,350

             

MCK Branded EBIT Conv (75bp Marg)

     

$15

$16

$16

$32

$33

             

Total Rolling Rev Effect

     

-$1,234

-$1,757

-$1,783

-$3,017

-$3,541

             

Total Rolling EBIT Effect

     

$24

$4

$2

$26

$6

             

Rev Year 1 Conver

     

$823

$870

$870

$1,692

$1,740

             

EBIT Year 1 Conver

     

$39

$42

$42

$81

$83

             

Rev Year 2 Conver

       

$370

$391

$391

$762

             

EBIT Year 2 Conver

       

$18

$19

$19

$36

             
                               

 

 

 

 

 

 

 

 

 

             

Sgmt / HCIT -- HCIT EBIT Upside

                             

Revs

 

FY 3/07

FY 3/08

FY 3/09

FY 3/10

FY 3/11

FY 3/12

FY 3/13

             

   Distribution

 

$90,738

$98,719

$103,568

$105,578

$107,458

                 

   HCIT

 

$2,239

$2,984

$3,064

$3,124

$3,212

$3,350

$3,500

             

EBIT

                             

   Distribution

 

$1,395

$1,483

$1,158

$1,947

$2,038

                 

   Distrib EBIT % Sales

 

1.5%

1.5%

1.1%

1.8%

1.9%

                 

   HCIT

 

$206

$319

$334

$356

$337

$382

$420

             

   HCIT EBIT %

 

9.2%

10.7%

10.9%

11.4%

10.5%

11.4%

12.0%

             

   HCIT EBITDA

 

$329

$499

$539

$568

$537

$582

$620

             

 

 

 

 

 

 

 

 

 

             

USON Acquisition EBIT Upside

 

FY 12/06

FY 12/07

FY 12/08

FY 12/09

FY 12/10

FY 12/11

FY 12/12

             

Revenues

 

$2,811

$3,001

$3,304

$3,512

$3,650

$3,850

$4,000

             

   % Growth y/y

   

6.7%

10.1%

6.3%

3.9%

5.5%

3.9%

             

Gross Profit

 

$325

$302

$294

$310

$320

$350

$360

             

   % Sales

 

11.6%

10.1%

8.9%

8.8%

8.8%

9.1%

9.0%

             

SG&A

 

$161

$174

$180

$176

$176

$176

$176

             

Synergies

           

$12.5

$25.0

             

EBIT

 

$165

$129

$114

$135

$145

$187

$210

             

   % Sales

 

5.9%

4.3%

3.5%

3.8%

4.0%

4.9%

5.2%

             

EBITDA

 

$248

$218

$217

$238

$248

$290

$313

             

D&A

 

$83

$89

$103

$103

$103

$103

$103

             

Notes:  1/1 close, $2.2B deal from Welsh Carson, 9.4x TTM EBITDA, no guided synergies.  Specialty drugs / oncology focused.

             

Current rev grwth rate 4%.  Sgmt Breakout:  45% Cancer Ctr Svcs (35% Margins), 30% Pharma Svcs, 25% Oncology Svcs.

             

 

 

Catalyst

Earnings outperformance from a strong generics cycle and USON acquisition.  May 2011 switch to adjusted EPS guidance moves street estimates up 50c / share.  Continued share repurchases and revaluation to historic 13-15x EPS multiple.  Possible spin of higher-multiple HCIT business if shareholder pressure increases.
    sort by    

    Description

    MCK is one of the big 3 drug wholesaler / distribution co's (ABC, MCK, & CAH).  An MCK investment offers protected downside and 20% return upside to a reasonable base case scenario.  MCK trades at a slight discount to CAH (it is in line with ABC) but has underappreciated upside to #'s because of its accretive acquisition of US Oncology and earnings growth from margin recovery in its hospital IT business ("HCIT").  HCIT deserves to trade at a higher multiple than the distribution business and is currently suffering from a cyclical downturn in Hospital CapEx.  There is no current management desire to spin HCIT, although this is an increasing demand of MCK shareholders.  HCIT would be the largest public healthcare IT business, and even if it traded at a discount to better-positioned comps such as CERN and MDRX, achieving a reasonable 9.5x EBITDA multiple would add $3 / share to the MCK price target.

    MCK's EBIT growth tailwind should come from:  1)  the accretive USON acquisition, 2)  the strong 2011-2013 generics conversion cycle, and 3) recovery of the HCIT business.  Street estimates are likely too conservative given these tailwinds (see estimates bridge and variance below).  Management is shareholder friendly and tends to guide conservatively (note the summer 2010 ASR and MCK's 5 year tradition of linking bonuses to beating EPS guidance).

    The generics cycle benefits all drug distributors as generic EBIT $'s per pill sold can be 3-5x branded EBIT $'s per pill.  Drug distributors get very thin EBIT margins (0.5% to 1.5%) on their branded drug sales to their drugstore customers, but can earn 5-15% margins on generics.  During the exclusivity period (1st year of generic sales) is when the EBIT $ accretion effect is the highest (price compression from multi-source generic competition has not yet compressed sales $'s by 50%+ per pill).  Distributors continue to earn higher EBIT $'s per pill relative to branded when the drug transitions to a multi-source generic (see transition model below).  It is also relevant to MCK that the 2011 generic conversion schedule is heavily weighted towards specialty (oncology) drugs.  MCK is now a close 2nd to ABC in specialty drug market share after the U.S. Oncology acquisition.  Because of USON, MCK will show a relatively stronger benefit from this coming generic cycle vs past ones (2008, 2006, 2002).  In the past, drug distributors multiples traded on par with PBM multiples in strong generics cycles (they are now at a significant discount).  The 2.5x EBITDA multiple gap between distributors and PBMs should start to narrow, especially as distributors continue to repurchase shares as they benefit from the freeing of working capital $'s in the transition to higher % generic penetration (could be $1B of extra cash to MCK over the next 2-3 years).

    MCK, in particular, should also benefit from a 2011 trend in healthcare of analyst and company reporting towards adjusted EPS #'s (excluding non cash amortization of intangibles resulting from acquisitions).  MCK has hinted that they may switch to this reporting method in 2011 (note that MHS has switched to this approach and receives a 15x multiple on adjusted EPS).  See Lazard's recent note ranking MCK as near the top in divergence between GAAP EPS and adjusted EPS (50c effect).

    MCK CEO John Hammergren has hit the tape with significant stock sales recently, but he still has significant underlying options exposure.  Hammergren is shareholder friendly ($1.5B of buybacks in the last 12 months), and he has successfully restored MCK's credibility after its large and extremely overpriced acquisition of HBOC 11 years ago.  Hammergren was facing significant option expirations in 2010 (and tax bills) based on incentive comp awards from his 2001 start as CEO. 

     

    3/12 Price Targets:

         
       

    MCK Cash 3/13 EPS

     
     

    $6.15

    $6.45

    $6.75

    $6.92

    11x

    $67.65

    $70.95

    $74.25

    $76.12

    12x

    $73.80

    $77.40

    $81.00

    $83.04

    13x

    $79.95

    $83.85

    $87.75

    $89.96

    14x

    $86.10

    $90.30

    $94.50

    $96.88

    15x

    $92.25

    $96.75

    $101.25

    $103.80

     

    Price

    $74.47

                               

    Shrs Out

    262.0

                               

    Mkt Cap

    $19,511

                               

       Total Debt

    $2,279

                               

    Adj Debt for USON Acq

    $3,979

                               

       Cash

    $3,050

                               

    Adj Cash for USON Acq

    $2,590

                               

    Net Debt

    $1,389

                               

    Adj EV

    $20,900

                               
                                   
             

     

    Bridge to FY 3/12:

       

     

    Bridge to FY 3/13:

       

     

             

     

       

    Generic

    Organic

     

       

    Generic

    Organic

     

             

     

    USON

    HCIT

    Cycle

    Growth

     

    USON

    HCIT

    Cycle

    Growth

     

     

    FY 3/2007

    FY 3/2008

    FY 3/2009

    FY 3/2010

    FY 3/2011

    9 Mths

    Grwth

    Effect

     

    FY 3/2012

       

    Effect

     

    FY 3/2013

    Revenues

    $92,977

    $101,703

    $106,632

    $108,702

    $112,396

    $2,888

    $138

    -$3,017

    $4,496

    $116,900

    $150

    $150

    -$3,541

    $4,676

    $118,335

       Street

           

    $111,483

           

    $116,858

           

    $118,904

    COGS

    $88,645

    $96,694

    $101,254

    $103,026

     

           

     

           

     

    Gross Profit

    $4,332

    $5,009

    $5,378

    $5,676

     

           

     

           

     

       % Sales

    4.7%

    4.9%

    5.0%

    5.2%

     

           

     

           

     

    SG&A

    $3,074

    $3,536

    $3,689

    $3,688

     

           

     

           

     

       % Sales

    3.3%

    3.5%

    3.5%

    3.4%

     

           

     

           

     

    EBIT

    $1,258

    $1,473

    $1,689

    $1,988

    $2,073

    $140

    $45

    $26

    $83

    $2,367

    $23

    $38

    $6

    $95

    $2,529

       % Sales

    1.4%

    1.4%

    1.6%

    1.8%

    1.9%

           

    2.0%

           

    2.1%

       Street

           

    $2,037

           

    $2,243

           

    $2,467

    Net Int Expense

    -$4

    $53

    $113

    $171

    $162

           

    $162

           

    $162

    Affiliate / Non Op Inc

    $29

    $32

    $20

    $10

    $10

           

    $10

           

    $10

    PreTax Inc

           

    $1,901

           

    $2,195

           

    $2,357

    Tax Rate

    25.4%

    32.1%

    22.7%

    32.2%

    32.5%

           

    32.5%

           

    32.5%

    Tax Expense

           

    $618

           

    $713

           

    $766

    Net Income

    $913

    $990

    $823

    $1,263

    $1,283

           

    $1,482

           

    $1,591

       Street

           

    $1,267

           

    $1,376

           

    $1,508

    EPS

    $2.89

    $3.31

    $3.97

    $4.58

    $4.87

           

    $5.74

           

    $6.41

       Street

           

    $4.83

           

    $5.46

           

    $6.22

    Shares Repurch, $750M/yr

           

     

           

    10.4

           

    10.0

    Avg Shares Out

    316.0

    305.0

    298.0

    279.0

    263.5

           

    258.3

           

    248.1

    Acq Adj "Cash EPS"

           

    $5.21

           

    $6.22

           

    $6.92

       USON Amort Aft Tax

           

    $13

           

    $51

           

    $51

       Stk Cmp (Don't Add Back)

     

    $60

    $91

    $99

    $114

           

     

           

     

       Intangible Amort AT

           

    $77

           

    $75

           

    $75

       Acq Adj "Cash Net Income"

           

    $1,373

           

    $1,607

           

    $1,716

             

     

           

     

           

     

    EBITDA

    $1,553

    $1,844

    $2,130

    $2,462

    $2,581

    $218

    $45

    $26

    $83

    $2,925

    $23

    $38

    $6

    $95

    $3,042

       Street

           

    $2,545

           

    $2,800

           

    $2,980

    EBITDA - CapEx

    $1,427

    $1,649

    $1,935

    $2,263

    $2,120

           

    $2,545

         

     

    $2,662

    FCF (NI + D&A - CapEx)

    $1,082

    $1,166

    $1,069

    $1,538

    $1,366

           

    $1,659

           

    $1,724

    CapEx

    -$126

    -$195

    -$195

    -$199

    -$425

           

    -$380

           

    -$380

    D&A

    $295

    $371

    $441

    $474

    $508

           

    $558

           

    $513

                                   

    Multiples

                                 

    EV / EBITDA

         

    8.5x

    8.1x

           

    7.1x

           

    6.9x

    EV / EBITDA - CapEx

         

    9.2x

    9.9x

           

    8.2x

           

    7.9x

    EV / EBIT

         

    10.5x

    10.1x

           

    8.8x

           

    8.3x

    P / E

         

    16.3x

    15.3x

           

    13.0x

           

    11.6x

    Cash P / E

         

     

    14.3x

           

    12.0x

           

    10.8x

                                   

    Growth

                                 

    Sales Grwth %

     

    9%

    5%

    2%

    3%

           

    4%

           

    1%

    EBIT Grwth %

     

    17%

    15%

    18%

    4%

           

    14%

           

    7%

     

     

     

     

     

     

     

     

     

                 

    Gen Conv Effect % of Branded

    Year 1

    Year 2

                             

    Rev

    40%

    18%

     

    70% conversion ratio for MCK.

                     

    EBIT (180 day exclusivity)

    255%

    115%

                             
           

    FY 3/09

    FY 3/10

    FY 3/11

    FY 3/12

    FY 3/13

                 

    UBS Cal Yr Estimates of Branded $ Going Generic

       

    $13,000

    $16,000

    $13,750

    $26,750

    $27,500

                 

    MCK Effect (Assume FY10 is 75% 2011 Wtd)

       

    $2,056

    $2,175

    $2,175

    $4,231

    $4,350

                 

    MCK Branded EBIT Conv (75bp Marg)

         

    $15

    $16

    $16

    $32

    $33

                 

    Total Rolling Rev Effect

         

    -$1,234

    -$1,757

    -$1,783

    -$3,017

    -$3,541

                 

    Total Rolling EBIT Effect

         

    $24

    $4

    $2

    $26

    $6

                 

    Rev Year 1 Conver

         

    $823

    $870

    $870

    $1,692

    $1,740

                 

    EBIT Year 1 Conver

         

    $39

    $42

    $42

    $81

    $83

                 

    Rev Year 2 Conver

           

    $370

    $391

    $391

    $762

                 

    EBIT Year 2 Conver

           

    $18

    $19

    $19

    $36

                 
                                   

     

     

     

     

     

     

     

     

     

                 

    Sgmt / HCIT -- HCIT EBIT Upside

                                 

    Revs

     

    FY 3/07

    FY 3/08

    FY 3/09

    FY 3/10

    FY 3/11

    FY 3/12

    FY 3/13

                 

       Distribution

     

    $90,738

    $98,719

    $103,568

    $105,578

    $107,458

                     

       HCIT

     

    $2,239

    $2,984

    $3,064

    $3,124

    $3,212

    $3,350

    $3,500

                 

    EBIT

                                 

       Distribution

     

    $1,395

    $1,483

    $1,158

    $1,947

    $2,038

                     

       Distrib EBIT % Sales

     

    1.5%

    1.5%

    1.1%

    1.8%

    1.9%

                     

       HCIT

     

    $206

    $319

    $334

    $356

    $337

    $382

    $420

                 

       HCIT EBIT %

     

    9.2%

    10.7%

    10.9%

    11.4%

    10.5%

    11.4%

    12.0%

                 

       HCIT EBITDA

     

    $329

    $499

    $539

    $568

    $537

    $582

    $620

                 

     

     

     

     

     

     

     

     

     

                 

    USON Acquisition EBIT Upside

     

    FY 12/06

    FY 12/07

    FY 12/08

    FY 12/09

    FY 12/10

    FY 12/11

    FY 12/12

                 

    Revenues

     

    $2,811

    $3,001

    $3,304

    $3,512

    $3,650

    $3,850

    $4,000

                 

       % Growth y/y

       

    6.7%

    10.1%

    6.3%

    3.9%

    5.5%

    3.9%

                 

    Gross Profit

     

    $325

    $302

    $294

    $310

    $320

    $350

    $360

                 

       % Sales

     

    11.6%

    10.1%

    8.9%

    8.8%

    8.8%

    9.1%

    9.0%

                 

    SG&A

     

    $161

    $174

    $180

    $176

    $176

    $176

    $176

                 

    Synergies

               

    $12.5

    $25.0

                 

    EBIT

     

    $165

    $129

    $114

    $135

    $145

    $187

    $210

                 

       % Sales

     

    5.9%

    4.3%

    3.5%

    3.8%

    4.0%

    4.9%

    5.2%

                 

    EBITDA

     

    $248

    $218

    $217

    $238

    $248

    $290

    $313

                 

    D&A

     

    $83

    $89

    $103

    $103

    $103

    $103

    $103

                 

    Notes:  1/1 close, $2.2B deal from Welsh Carson, 9.4x TTM EBITDA, no guided synergies.  Specialty drugs / oncology focused.

                 

    Current rev grwth rate 4%.  Sgmt Breakout:  45% Cancer Ctr Svcs (35% Margins), 30% Pharma Svcs, 25% Oncology Svcs.

                 

     

     

    Catalyst

    Earnings outperformance from a strong generics cycle and USON acquisition.  May 2011 switch to adjusted EPS guidance moves street estimates up 50c / share.  Continued share repurchases and revaluation to historic 13-15x EPS multiple.  Possible spin of higher-multiple HCIT business if shareholder pressure increases.
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