McKesson

IThe business

McKesson buys medicine from drug makers and delivers it to the places that give it to patients. In fiscal 2026, which ended on 31 March 2026, it had $403.4B of revenue, 12% more than a year earlier, and 43,000 employees.² That revenue is mostly the price of the drugs themselves, which McKesson passes through. What it keeps is small: gross profit was $14.6B, a 3.61% margin, and adjusted operating profit was $6.5B, 1.60% of revenue C (calculated).²³ The company is a very large pipe with a very thin skim.

It reports four segments. North American Pharmaceutical is the wholesale core. Oncology & Multispecialty supplies and supports cancer and other specialty doctors. Prescription Technology Solutions sells software and services that help patients get medicines. Medical-Surgical Solutions sells supplies to clinics and nursing homes, and McKesson plans to separate it into its own company.²

North American Pharmaceutical

This segment had $336.7B of revenue in fiscal 2026, 83% of the company, and $3.5B of adjusted segment operating profit, a margin of 1.03% C (calculated).³ It distributes branded, generic, specialty, biosimilar and over-the-counter drugs to customers in the US and Canada from 27 US distribution centers.² Pharmacy chains, community pharmacies and hospital systems order from McKesson,. McKesson takes the inventory risk, pays the manufacturer, and waits for its customers to pay.

The money comes from three places. One is the fee from manufacturers. Some of McKesson’s distribution agreements pay it a percentage of its purchases, and some add a component tied to the manufacturer’s price increases.² The second is generics, where McKesson buys at scale through ClarusONE, a sourcing venture with Walmart, and sells to pharmacies; the 10-K lists generic distribution as a source of risk as well as of income.² The third is services to pharmacies: the 10-K lists Health Mart, a franchise of about 3,900 independent pharmacies, reimbursement and inventory software, and consulting.² In Canada the company also supplies about 2,600 independent pharmacies under banners such as IDA, Guardian and Uniprix.²

The 10-K notes one wrinkle. Some manufacturers pay McKesson in part for price increases: it earns more when a drug’s price rises while it holds stock. When price increases slow, as they have for brands, gross profit slips.² In fiscal 2026 McKesson booked a $210M LIFO credit, which is a gain from falling brand prices on inventory it carries, against an $82M charge in the year before.²

Oncology & Multispecialty

This is the growth story. Revenue was $48.4B in fiscal 2026, up 31%, and adjusted segment operating profit was $1.44B, up 53%.³ The segment sells cancer and other specialty drugs to physician practices. It also runs the services around them: a group purchasing organization, practice management and technology, and the US Oncology Network, one of the largest networks of community cancer practices in the country.² The segment includes PRISM Vision, a retina and eye-care group of which McKesson owns 80%, and Sarah Cannon Research Institute, 51% owned, which runs clinical trials.²

It grew by buying. On 1 April 2025 McKesson paid $875M for 80% of PRISM Vision, and on 2 June 2025 it paid $2.5B for 70% of Core Ventures, the business arm of Florida Cancer Specialists.² Together that is $3.4B, almost all of the $3.4B McKesson spent on acquisitions in fiscal 2026 C (calculated).² In the first quarter of fiscal 2027 segment revenue was $14.2B, up 33%, and adjusted operating profit was $405M, up 41%.⁴ On 6 October 2026 McKesson agreed with the private equity firm CD&R to acquire Option Care Health, a home infusion company, for $32.05 a share, an enterprise value of about $5.8B. CD&R takes about 51%; McKesson puts in about $1.4B for about 49% and has a framework to buy the rest later. The deal is expected to close in the first half of calendar 2027.¹²

The company’s own long-term target for this segment is 13% to 16% a year of adjusted operating profit growth.³ I treat that as a target, not a forecast. Part of the growth is acquired, and the margin is thin at 2.96% C (calculated).³ But it is higher than the 1.03% in pharmaceutical distribution, so each dollar of revenue that moves toward oncology lifts the average.

Prescription Technology Solutions

The smallest segment is the best business. Revenue was $5.8B and adjusted operating profit was $1.13B, a margin of 19.4% C (calculated).³ It sells to drug makers and connects pharmacies, doctors, insurers and patients. The 10-K says it is connected to over 50,000 pharmacies and more than 1,000,000 providers, has supported over 650 drug brands, and says it helped patients save about $10B on brand and specialty medicines in the last year.² Services include electronic prior authorization, co-pay support, and patient enrollment. The company targets 10% to 13% yearly profit growth.³ In the fourth quarter of fiscal 2026 it approved a $200M to $250M restructuring in this segment.² A business can be good and still need to be reorganized; I note it.

Medical-Surgical Solutions

This segment sells gloves, needles, wound care, lab equipment and drugs to doctors’ offices, surgery centers, nursing homes and home health agencies. It had $11.5B of revenue in fiscal 2026, up 1%, and $1.03B of adjusted operating profit, an 8.9% margin C (calculated).³ It has more than 336,000 customers and offers over 270,000 products, including about 4,000 under its own label.² In the first quarter of fiscal 2027 revenue grew 4% but adjusted profit fell 20% to $195M, on product mix and one-time administrative costs.⁴

McKesson announced in fiscal 2026 that it would separate the segment, by a spin-off, a split-off, or both. It is meant to be tax-free to shareholders, but needs a legal opinion, a registration statement, and board approval.² The new company will be called Wellverse.⁴ On 1 June 2026 Apollo funds paid about $1.25B for convertible preferred equity worth about 13% of the segment.⁵ The segment has borrowed too: a $750M term loan due 2031, a $250M term loan due 2028 and a $1.0B revolver in April, then a $2.25B Term Loan B due 2032 in June.¹³¹⁴ I do not know the date. What I can say is that the split removes about 14% of segment profit C (calculated) and lets each business carry its own debt and valuation. It also costs: charges for the separation were $77M in fiscal 2026 and $68M in the first quarter of fiscal 2027.²⁵

GLP-1 drugs: volume that passes through, and a price that moves

McKesson’s filings do not mention GLP-1 drugs by name. I searched the 10-K, the June 2026 10-Q, both earnings releases and the proxy and found none.²⁵⁴³ So I cannot give McKesson’s GLP-1 volume, or what it earns on it. What I can give is the size of the flow it sits in, from the manufacturer’s side.

Eli Lilly says in its 10-K that McKesson, Cencora and Cardinal Health are the US wholesalers that handle most of its products, and that each accounted for between 16% and 24% of Lilly’s revenue in each of the last three years.¹⁵ In the first nine months of 2026, Lilly’s US revenue was $14.0B for Mounjaro and $14.3B for Zepbound, $28.3B in all, against $18.8B a year earlier, 51% more C (calculated).¹⁶ Lilly says its revenue rose on volume, partly offset by lower realized prices, and that those two effects came mainly from Mounjaro and Zepbound.¹⁶ The filing does not say what share of doses bypasses wholesalers, so the amount that reaches McKesson is smaller than the total by a part I cannot see.

That gives two opposite effects. More doses, and especially more expensive drugs delivered to health systems and strategic accounts, add to McKesson’s revenue and to the fee base. McKesson credits its fiscal 2027 first-quarter profit growth of 19% in the pharmaceutical segment partly to specialty distribution to health systems and to new product launches.⁴ The other effect is price. McKesson’s revenue release says branded pharmaceuticals contributed less, and its 10-K says fiscal 2026 had significant brand deflation and branded price decreases.⁴² A cheaper pen means less revenue per box and, where McKesson’s fee is a percentage, less fee. The fee is not disclosed as a percentage. I do not know the net effect, and I am not going to guess it. What I do know is that the growth rate of this one product family matters to a wholesaler more than to most companies, because McKesson’s customers are Lilly’s too.

Opioid litigation: what is on the balance sheet

McKesson and two other national distributors settled opioid claims with 48 states and their subdivisions, plus the District of Columbia and the territories, for $7.9B of payments through 2038. At least 85% must be spent on opioid remediation, and the rest covers plaintiffs’ lawyers through 2030.² McKesson has separate deals with Alabama for about $174M through 2031, with certain West Virginia subdivisions for about $152M through 2033, with tribes for $196M through 2027, and with a nationwide class of hospitals for $149M and one of payors for $114M.²

At 31 March 2026 the liability on the balance sheet was $5.69B, of which $601M is due within a year; at 30 June 2026 it was $5.66B.²⁵ McKesson paid $512M in fiscal 2026, $515M in 2025 and $544M in 2024.² That is a steady $0.5B a year of cash for more than a decade, and it has been taken out of cash flow every year in the figures above. Fiscal 2021 carried a $7.9B charge, which is why that year’s operating income was negative C (calculated).⁹

Claims remain that are not in the number. The company says that for matters other than those accrued it cannot conclude that a loss is probable or estimate a range.² The 4th Circuit reversed the verdict that had favoured McKesson in the Cabell County and City of Huntington case on 28 October 2025 and sent it back to the trial court. A Baltimore trial court entered a $37M plus $72M judgment against McKesson in September 2025; the Maryland Supreme Court vacated it on 24 April 2026. Four Canadian cases are pending, with a trial for the provinces set for 22 February 2028.² I price those as a range, not a point; the Valuation section shows it.

IIThe moat

A durable advantage is a cost or a habit that a rival with money cannot copy quickly. For a drug wholesaler there are four, and they differ in strength.

Scale in a fixed-cost network. A wholesaler buys from thousands of manufacturers and sells to tens of thousands of pharmacies, and the cost of the building and the truck is the same whoever is on the shelf. McKesson runs 27 US distribution centers.² A new entrant would need to lease or build dozens of regulated sites and carry about $24B of inventory to match it C (calculated).² Nobody has tried at national scale. The 10-K lists only two primary competitors in pharmaceutical distribution, Cencora and Cardinal Health.² This is strong.

Regulation and trust. A wholesaler needs federal DEA registration and state licences, traceability of every package under the Drug Supply Chain Security Act, and controlled-substance monitoring.² These cost money and time, and McKesson has paid dearly for failing at one of them. They also keep small rivals out. Moderate.

Switching costs. A pharmacy’s ordering system, its credit line and its delivery times are tied to its wholesaler, and the large chains negotiate multi-year contracts. But the biggest customers can and do move. McKesson’s ten largest customers, including buying groups, were 73% of fiscal 2026 revenue and CVS alone was 24%.² The CVS distribution agreement was extended to June 2027.² Sales to the next two customers were 11% and 10%.² When customers are this large, they can press fees down, and the scale that protects McKesson also protects them. Weak at the top, strong for the rest.

Data and services. Prescription Technology Solutions and Ontada, the oncology software and data business, hold information about prescriptions and treatments that a wholesaler alone would not have. The 10-K says its drug-access network connects most health records systems, over 50,000 pharmacies and most pharmacy benefit managers.² This is the newest and least proven source; it earned 16% of segment profit in fiscal 2026 C (calculated).³

Taken together, the position is strong for the product McKesson sells and weak on price. That position protects the volume. It does not protect the margin, which has fallen on its own: gross margin was 5.68% in fiscal 2017 and 3.61% in 2026 C (calculated).⁹² The services businesses were bought in part to replace it.

IIIThe competitive advantage

The honest comparison is with the other two. All three sell the same drugs to the same customers and are priced against each other. The table puts them side by side, using each company’s latest completed fiscal year.

McKesson is the biggest by revenue, $403B against $321B at Cencora and $254B at Cardinal. It earns the highest GAAP operating margin of the three, 1.54% against 0.82% and 1.03%, though the figures include different one-off items and I would not lean on the gap. Where it is clearly ahead is the mix. About 12% of McKesson’s revenue is oncology, and in fiscal 2026 that segment earned $1.4B. The 10-K says Cencora and Cardinal Health also compete with it in oncology and specialty, offering their own mixes of distribution, buying-group and provider services.² I did not read their filings in enough depth to say how large those arms are, so I do not claim McKesson’s lead is wide.

On price, McKesson is not the cheapest. Its free cash flow is 4.6% of market value, against 4.9% for Cencora and 7.5% for Cardinal C (calculated). Better growth and the services mix can explain a premium; they do not make it a bargain. If the question is where one dollar earns most in this industry, the other two screen cheaper on cash flow. Whether McKesson’s oncology lead is worth the premium is the thing I cannot measure from their filings.

The difference between McKesson and the other two will come from three places. The first is whether oncology keeps growing at the 13% to 16% the company targets, and how much of it is bought. The second is whether Prescription Technology can restore faster growth after its restructuring. The third is cost: McKesson’s operating expenses were 2.07% of revenue in fiscal 2026 against 2.48% the year before, partly from selling its Norwegian business at a $480M gain, so I am careful about reading that gain as skill.² Those are the places to look.

IVManagement

Brian Tyler has been chief executive since April 2019 and became chair of the board on 1 May 2026, while Donald Knauss completed his board service at the 2026 annual meeting; Dominic Caruso is lead independent director.²⁸ Before that he was president and chief operating officer from August 2018, ran McKesson Europe from 2016 to 2018, and led North American distribution in 2015 and 2016.² Combining the chair and CEO roles is a governance choice. It puts one person in charge of both running the company and checking it, and the lead independent director is the counterweight.

The CFO changed in May. Kenny Cheung, 44, who had been CFO of Sysco since 2023 and CFO of Hertz from 2020 to 2023, including its bankruptcy, took over on 29 May 2026 from Britt Vitalone.¹⁸ His sign-on terms were a $3.5M bonus, repayable pro rata if he leaves within two years, plus $6.0M of restricted stock units.¹⁸ The chief strategy officer also changed on 1 August.⁴ Two senior finance and strategy changes during a separation and a large deal are worth watching.

How they are paid

Tyler’s fiscal 2026 pay was $24.2M: $1.59M of salary, $17.2M of stock awards and $4.46M of annual bonus. It was $20.2M the year before.⁸ The pay ratio to the median employee is about 357 to 1.⁸ The annual bonus is weighted on adjusted operating profit and free cash flow, 25% each, with other priorities; for fiscal 2026 the committee used $6.43B for operating profit and $5.41B for free cash flow.⁸ The long-term stock awards for the fiscal 2026 to 2028 cycle pay on cumulative adjusted EPS (67%) and average return on invested capital (33%), with a plus or minus 20% adjustment for total shareholder return against peers.⁸

That tells me what management is paid to do. Adjusted EPS is easiest to raise by buying back shares and by buying earnings. McKesson does both: $26.4B of buybacks and $12.8B of acquisitions in ten years C (calculated).⁹ Free cash flow and return on capital push back, because they penalise a deal that earns too little. The score depends on the target: EPS growth of 13% to 16% a year is the company’s own stated aim, and the proxy describes the shareholder-return modifier as a way to avoid payouts that follow the stock rather than the business.³⁸ Adjusted EPS excludes the cost of settling opioid claims, acquisition amortization, restructuring and deal costs; none is zero, and the owner-cash line in Valuation puts them back.

How much of their own money

The CEO’s ownership requirement is six times base salary and others’ is three times.⁸ The proxy shows Tyler with 27,990 shares as of 27 May 2026, including awards that vest soon, about $28M at the current price C (calculated), and all 17 directors and executive officers together with 73,455 shares, well under 0.1% of the company.⁸ The largest holders are index managers: Vanguard 7.8% and BlackRock 7.9%.⁸ Management is paid in the stock and holds meaningful amounts, but it is not an owner-operator in the way the founder of a small company is.

What they did with capital over a full cycle

Over fiscal 2017 to 2026 McKesson generated $48.2B of operating cash flow and $42.0B of free cash flow C (calculated).⁹ It spent $26.4B on buybacks, $3.0B on dividends and $12.8B on acquisitions C (calculated).⁹ Diluted shares fell from 223M to 124M, and the share price rose 7.4 times, from $135.83 in November 2016 to $998.38 C (calculated).¹ Those buybacks were done when the stock was cheap; the 2026 programme, $4.75B in the year and $2.5B in the June quarter, is done at 22 times earnings.⁹⁴ The dividend grew for a tenth year, to $0.94 a quarter, and costs about $0.4B a year.⁴

The acquisition record is mixed and I keep it in two parts. McKesson has exited Europe, with a final sale of Norway for $821M on 30 January 2026, and the Canadian retail chain was written down by $667M in fiscal 2025 ahead of its sale.² Oncology and eye-care buys are new, and their return is not yet visible. The Option Care stake is another large cheque, $1.4B for a minority, with a framework to buy the rest. I give management credit for cash discipline and for exiting weaker businesses. I hold back credit on deals until the profit from the 2025 oncology purchases shows up in the segment margin, which in fiscal 2026 was 2.96% C (calculated).³

VFinancials

McKesson’s accounts are large and simple, with four features that matter. Revenue is mostly pass-through, margins are thin, working capital is negative, and the GAAP profit line carries large one-off items that the company’s adjusted numbers leave out. Ten years of the main lines are in the table. Fiscal years end on 31 March, so fiscal 2026 ended on 31 March 2026.

Revenue has grown 8.2% a year for nine years, from $199B to $403B, but gross profit only from $11.3B to $14.6B, 2.9% a year C (calculated).⁹ The gross margin has therefore fallen from 5.68% to 3.61% C (calculated). Two things explain it: faster growth in the lowest-margin business, supplying a few giant customers, and the decline in branded price increases.² Operating expenses fell to 2.07% of revenue in fiscal 2026 from 2.48% a year earlier, helped by a $480M gain on the Norway sale C (calculated).²

The cash

Cash flow is steadier than profit and has grown: $4.7B in fiscal 2017 to $6.2B in 2026 C (calculated).⁹ Capital spending is light: property and capitalized software together were $0.74B in 2026, 0.18% of revenue C (calculated).² Over the decade $6.2B of capital spending produced $42.0B of free cash flow C (calculated).

The working-capital model

This is the center of the business. McKesson pays its suppliers in about 59 days, collects from customers in 22 and holds inventory for 24.² So the cycle is negative: customers and shelves tie up 46 days of cost while suppliers carry 59, a gap of about 13 days C (calculated).² At 31 March 2026 payables were $59.97B, receivables $27.99B and inventory $24.21B, leaving $7.78B that suppliers fund C (calculated).² Reported working capital was −$9.8B.² Ten years earlier suppliers funded less than customers and inventory required: the figure was −$2.5B in fiscal 2017 C (calculated).⁹ The swing from −$2.5B to +$7.8B is about $10.3B, a fifth of the $48B of operating cash flow of those years C (calculated).

That is a feature of growth, and it can reverse. When sales rise 12%, payables rise with them and cash comes in; when sales fall, or suppliers shorten terms, cash goes out. The first quarter of fiscal 2027 shows the seasonality: operating cash flow was −$220M and free cash flow −$372M, while receivables and inventory rose $2.3B and $2.1B.⁴⁵ The year-end figures, which come in the fourth quarter, were the opposite. I treat the supplier credit as borrowed from suppliers, not as earned, in the owner-cash estimate below.

Debt, leases and the deficit

Stockholders’ equity is negative, −$2.2B at March 2026, because McKesson has returned more than it has earned: $26.4B of buybacks in ten years C (calculated).²⁹ Debt at 30 June 2026 was $9.73B, up from $6.53B in March, because the Medical-Surgical subsidiary raised $3.25B of term loans, and cash was $5.16B, so net debt was $4.56B C (calculated).⁵¹³¹⁴ The company has a new $5.0B revolver to April 2031 with a leverage limit of 4.25 times that excludes Medical-Surgical.¹⁹ Purchase obligations due within a year are $9.7B, mostly inventory.² It also has $1.2B of uncertain tax positions.² I find the leverage modest, and the legal liability the larger claim on cash.

The cash has gone to buybacks, which came to $26.4B in ten years. The fiscal 2026 amount was $4.75B, and $2.5B more in the June 2026 quarter, including a $2.25B accelerated programme.⁹⁴ A further $5.0B authorization in April 2026 took the total to $7.7B.³ When shares are repurchased at a price that is high relative to value, the effect on owners is small or negative. At 22 times earnings it is near neutral, in my estimate, at the 7.6% return my base shows.

VIValuation

Start with what would go wrong

Three things would most likely destroy value here, and I worked backward from them.

The fee gets squeezed. McKesson’s margin is 1.6 cents on the dollar, so a quarter of a cent matters. The 10-K lists a CMS rule, effective 1 January 2026, that requires drug makers to certify that wholesaler distribution fees are not passed on to customers, which could be challenged and could lead makers to renegotiate; a most-favored-nation order that could let makers sell direct; state laws that cap drug prices; and an expiring CVS contract, 24% of revenue, due June 2027.² A one-tenth of a cent cut in margin, from 1.60% to 1.50%, takes $0.4B of operating profit, about 6% of the total C (calculated).

The legal bill grows. The company says it cannot estimate a loss on claims outside the $5.7B reserve, and the Cabell County case is back at trial.² A further $3B before tax, about $2.4B after tax, is my bear assumption; it is worth about $20 a share E (estimate). A cyber incident discovered on 25 August 2026 has not been judged material; no one knows yet.²⁰

Paying too much for growth. Oncology buys, $3.4B this year, a $1.4B Option Care stake, and a Medical-Surgical separation at once, add execution risk. If the 2025 deals earn less than expected, or the multiple falls from 22 times to 15 times as growth settles, the shares lose a third of their price even if profit grows.

What the price implies

At $998.38 the market value is $117B, and with net debt of $4.6B the enterprise value is $122B C (calculated).¹⁵ That is 25.5 times last year’s adjusted EPS of $39.11 and 22.4 times the $44.60 midpoint of the fiscal 2027 range.³⁴ It is more than the 24.5 times of last October and well above the 9.9 times of 2020 C (calculated).¹⁸¹⁰

Reverse DCF: what the price needs

Using my base margins, the price needs revenue to grow about 6.2% a year for ten years, to $737B in fiscal 2036, against 5.2% in my base and 8.2% over the last nine years C (calculated). Or, holding my base revenue, it needs the adjusted operating margin to climb to 1.91% from 1.60% today, against my 1.75% C (calculated). The first is not out of reach: McKesson has grown faster than 6% for nine years. The second is more of a stretch, since the gross margin has fallen almost every year.

The discount rate

I use 8.0%. A market-based check gives less: the ten-year Treasury at 4.94% plus McKesson’s beta times a 4.20% equity risk premium.²¹²² The beta, from monthly returns against the S&P 500, was 0.17 over 36 months, 0.30 over 60 and 0.53 over the available 119, giving 5.7%, 6.2% and 7.1% C (calculated).²³¹ I use 8.0% because beta is a poor guide for a company with a $5.7B legal liability and one customer at 24% of revenue. At 7.5% my base value is $1,032; at 8.5%, $828 E (estimate).

The bear case has the fee squeezed to 1.35% and a $3B further legal cost; it is worth $513, 49% below the price E (estimate). The bull case has the margin reaching 2.0% by 2036 as oncology and services grow; it is worth $1252 E (estimate). If management gets the 13% a year earnings growth it targets, which on my arithmetic needs about 11% a year of operating profit growth to a 2.5% margin, the value is about $1,384, above my bull E (estimate).³

Owner cash

What an owner can really take out is less than the headline. Fiscal 2026 adjusted earnings were $4.85B and free cash flow $5.41B.³ Take out the cash that suppliers lent because sales grew, minority partners’ share and stock pay, and what remains is about $3.7B E (estimate). That is 76% of adjusted earnings and 3.2% of today’s market value C (calculated). The range is $3.7B to $5.2B if you treat the supplier credit and stock pay as free. The opioid payment of $0.5B is already in that figure, and acquisitions are not; they are a choice.

What I can’t judge

Three inputs cannot be known from outside. One is the size of the fee wholesalers earn on GLP-1 drugs and branded drugs generally, because McKesson does not disclose it; the filings give margins only by segment. One is what the opioid claims outside the reserve cost, which depends on appeals and trials not yet held. One is how much of the oncology growth is organic, because acquisitions are folded into the growth rate. I show a range for each: $8.53 a share for each $1B after tax of legal cost, $102 a share for half a point of discount rate, and $50 a share for each tenth of a cent of final margin E (estimate).

Multiply it out

The base case needs several things at once. Revenue growth of about 5% a year (I give it 65%), a margin that rises from 1.60% to 1.75% (50%), CVS renewing on terms that keep margin (80%), legal cost within the reserve plus $1B (70%), and no policy change that cuts wholesaler fees (75%) E (estimate). Multiplied, that is 14%. They are not independent, which raises it; and they are not all required to get a decent result, since a lower margin can be offset by faster growth. But it shows the base is a path, not a certainty.

Quality and price are two questions

McKesson looks to me like a high-quality business: a large, regulated, hard-to-copy network, light on capital, with cash that grows and a good adjacent business in oncology and drug access. At the price, it looks like a fair-to-full purchase: 9% above my base value, with a return on my base cash flows of 7.6% a year C (calculated), about 2.7 points over the Treasury. A great business can be a poor purchase at the wrong price. Here the business is the good part and the price leaves little room for the legal or fee risk that I cannot judge.

The margin of safety

I set the margin-of-safety price at $644, 70% of my base value, because my base rests on a margin that has not risen in the ten years I looked at, and because $5.7B of legal liability and a 24% customer are the kind of exposure that justifies a thick cushion E (estimate). At $998.38 the price is 1.6 times that. The stock last closed below $644 in March 2025 C (calculated).¹ The next-best comparison is the same industry: Cencora and Cardinal Health offer free cash flow yields of 4.9% and 7.5% against McKesson’s 4.6%, and the Treasury offers 4.94% with none of the risk C (calculated).¹⁷⁶⁷²¹

VIIThe case for the price

What most people miss

First, McKesson’s growth pays for part of itself. Suppliers fund $7.8B more than the receivables and inventory McKesson carries, up from −$2.5B in fiscal 2017, and that swing is a fifth of the decade’s operating cash flow C (calculated).⁹² Second, the smallest segment does more than its size suggests. Prescription Technology Solutions is 1.4% of revenue and 16% of segment profit C (calculated).³ Third, free cash flow is already after the opioid settlement payments: $512M left the company in fiscal 2026 and is inside the $5.4B, so the legal bill is paid out of that figure, not on top of it.²³ Each of these changes how I read the headline numbers.

The bull case

The bull case, in plain words: McKesson is the biggest toll road on US drug spending, and drug spending grows. New drugs, GLP-1s and cancer medicines, are expensive and flow through three companies. On top of that toll, McKesson is adding services that earn many times the margin, in oncology practice management and drug-access software, and it is shedding its slower Medical-Surgical business. Buybacks cut the share count a few percent a year. Revenue growth of 5% to 6%, a slowly rising margin and a falling share count get to the 13% to 16% earnings growth the company has said it aims for.³

Management’s version has numbers. In the 5 August 2026 release it raised fiscal 2027 adjusted EPS guidance to $44.20 to $45.00, 13% to 15% growth, after a first quarter in which adjusted EPS grew 20% to $9.93.⁴ Brian Tyler, the CEO, attributed the result to the strength of the core distribution businesses and continued growth in oncology and multispecialty; Kenny Cheung, the CFO, said the raise reflects strong first-quarter performance.⁴ The company’s own longer-term targets are 5% to 8% a year for the pharmaceutical segment’s profit, 13% to 16% for oncology and 10% to 13% for Prescription Technology.³

I found no named investor with a public, current case for McKesson that I can attribute. Of thirty well-known managers whose 13F filings I searched, two held shares at 30 June 2026: Sands Capital with 183,535 shares, about $139M and down from 201,283 at the end of March, and Lone Pine Capital with 57,851 shares, about $44M and down from 392,224.²⁴²⁵ Both reduced their holdings in the quarter. A holding is not a thesis, and neither published a view on the company that I could find. Altimeter, Atreides, Duquesne, Appaloosa, Berkshire Hathaway, Coatue, Tiger Global, ARK, Fundsmith, Akre, Polen and Markel reported none in their latest filings, and the latest Pershing Square filing I could read, for 31 March 2026, showed none.²⁶ The largest holders are Vanguard and BlackRock, 7.8% and 7.9%, which index.⁸

Against reality

Much of the bull case is in the filings. Revenue is up 12% and adjusted EPS is up 18%; oncology profit rose 53% in fiscal 2026 and 41% in the first quarter.³⁴ So I tested the version management describes: revenue growing 6% a year and operating profit 11% a year, which is about 13% to 16% EPS growth with buybacks. That reaches $18B of adjusted operating profit in fiscal 2036 and a margin of 2.5%, against 1.60% today. It is worth about $1,384 a share E (estimate). So if McKesson does all it says and hits its targets, the price is possible, and then some. The gap is the distance between what they say and what has happened: the gross margin has fallen every year but one in my ten-year data, and a 2.5% adjusted margin would be a new level for the industry C (calculated).⁹²

The price itself needs less. At my base margins it needs revenue growth of about 6.2% a year, against my 5.2%, or a final margin of 1.91% against my 1.75% C (calculated). McKesson is above my base, below my bull and well below the management case. The honest summary: the price is paying for most of what management says, and for none of the legal risk or fee risk.

What a 10x would take. Ten times $998.38 is $9,984 a share, about $1.17T of market value on today’s share count C (calculated). At 20 times earnings that needs about $59B of net income, 12 times fiscal 2026 adjusted earnings. At the same 1.2% net margin it needs about $4.9T of revenue, 12 times the $403B of fiscal 2026 C (calculated).³² Doing that in ten years takes revenue growth of about 28% a year, with no change in the multiple. McKesson’s revenue grew 2.03 times in nine years. Its price rose 7.4 times, but from a company worth about $30B, in a decade when the multiple went from 10 to 26 times C (calculated).¹⁹ From $117B, tenfold is close to impossible, and I would not build a case on it.

Where I come down

Management’s record on cash, the $26B of buybacks and the oncology build moved me toward a higher base than I first expected. The price is 9% above that base, and it assumes the margin that has fallen for ten years turns up. What would raise my values: two more quarters of oncology profit above 40% growth, a CVS renewal on unchanged terms, and the Option Care stake adding profit at the multiple paid. What would lower them: a new federal rule on wholesaler fees, or a legal charge above $1B.

VIIIRisks, and what would change my view

The three ways this goes badly wrong are at the start of Valuation. These are the rest.

• The CVS contract. CVS was 24% of fiscal 2026 revenue and 21% of trade receivables; the contract runs to June 2027.² Renewal terms are not public.
• Policy. The 10-K cites ACA subsidies that expired on 31 December 2025, Medicaid cuts under the 2025 budget law, two December 2025 proposals for international-price rebates in Medicare Parts B and D, 340B rebate litigation, and the fee certification rule.² Each can change customers’ finances or McKesson’s fee.
• Customer failure. Rite Aid’s bankruptcy cost McKesson a $725M charge in fiscal 2024.² The allowance for credit losses is now 0.8% of receivables, down from 2.1%, which means less of a cushion.²
• Supplier concentration. The ten largest suppliers were 71% of purchases and the largest 11%.²
• Cyber and operations. McKesson disclosed an incident on 25 August 2026 and had not judged it material by 28 August.²⁰ I have no information beyond that.
• Execution. A separation, an eye-care and cancer-practice integration, and an Option Care closing run in the same period as a new CFO and strategy chief.¹⁸⁴