Covering Analyst: Cecilia Xiaceciliaxia89@gmail.com

Company Overview

Company Overview

› Oldest Healthcare Company

› Found by John McKesson and Charles Olcott in 1883

› 180 years

› Delivers Pharmaceuticals, Medical supplies and healthcare IT

› Headquartered in San Francisco

Company Overview Cont.

› Nation’s largest health-care provider

› Recognized by Fortune magazine as the #1 healthcare distributor for innovation, people management and financial soundness.

› Is ranked at 14th on the Fortune 500

Business Segments

Business Segments

› Distribution Solutions

› Technology Solutions

Revenue Segment 2012 Revenue(In Million)

2013 First Three Quarters Revenue

(In Million)

Distribution Solutions 119,424(97.30%)

89,347(97.29%)

Technology Solutions 3,310(2.70%)

2,488(2.71%)

Distribution Solutions FY12 Milestones› U.S. Pharmaceutical

– Grew Rev. 7%; Expanded Health Mart from 2,787 to 2,941 stores; Grew OneStop Generics 8%

› Specialty Health– Completed integration of US Oncology

› Canada– Grew Rev. 5%; achieved profit growth in a

difficult regulatory environment

› Medical-Surgical– Grew Rev. 8%; Pharmaceutical sales to

physician offices grew 12%

› Pharmacy Systems & Automation– Grew Rev. 22%; increased customer 23%

Market Share : Leading Market Position

Segments Market share

U.S. Pharmaceutical

#1

Specialty Health #2

Medical-Surgical #1

McKesson Canada #1

Technology Solutions› 2.7% of total revenue, 15% of the operating profit

› 45.62%, 43.97% Profit Margin in 2012, 2011

Industry Analysis

Industry Analysis› Government Spending:

– 1.2 trillion in 2013 (19.05% of GDP)– 1.1 trillion in 2012 (17.74% of GDP)

› Affordable Care Act:– 950 billion cost over 10 years – 15 % (32 million) currently uninsured

› Health Information Technology for Economic and Clinical Health Act:– Required install Healthcare Information Technology

› Brand-to-Generic– Better Profit Margin, Lag on Topline

› Generic New Approvals– More products available, Industry moving fast

Create Shareholder Value

Increasing Dividend

› FY07: $0.24

› FY12: $0.80 (233% increase)

Acquisitions

FY07-FY12:17 Acquisitions Distribution Solutions (4.1 Billion)17 Acquisitions Technology Solutions (2.2 Billion)

Share Repurchase› Since FY 07: Diluted Weighted Average Shares Outstanding

› Additional $500 million repurchase on top of $360 million this quarter

Comparable Analysis

Comparable Analysis› AmerisourceBergen Corporation – 50%

› Cardinal Health – 15%

› Owens & Minor – 15%

› Henry Schein – 10%

› Omnicare – 10%

Metrics

DCF Analysis

Revenue Model› Steady Revenue Growth – DS

› 5% CAGR

› Estimate 1.05%- 2.1% for year 2013 to 2018

Revenue Model› Steady Revenue Growth – TS

› 2% CAGR

› Estimate 1.86%-3.3% for year 2013-2018

Working Capital Model & DCF Model

› Percent of Revenue

› COGS: different than I/S

› SG&A: Grouped together in Qs

Final Valuation

Questions

Recommendation› Based on my comparable model and DCF analysis, MCK is

trading at a discount. The industry trend will provide the company more growing opportunity.

› I recommend a buy for Tall Firs and Svigals

Appendix – Brand-to-Generics

U.S. Oncology Aquisition › November 2010 mck spent $2.16 billion to buy us

oncology

› a physician practice management company for cancer doctors and with a more than 17% of all cancer patients.

› It sells lots of medical equipment and drugs to doctors’ offices. It is like a big customer plugged in as a subsidiary.

› Amerisourcebergen and cardinal health the two biggest providers of cancer drugs will no longer have the opportunity to sell to U.S. Oncology practices.

›

Reimbursement

› Reimbursement: The president and congressional republicans are still looking for common ground on fiscal cliff measures, including a postponement of scheduled Medicare payment cuts, which would result in a 27 percent reduction in reimbursement to all Medicare providers

Appendix – Profiles of MCK Distribution Solution

TS- Relayhealth

› 28,000+ healthcare transactions/minute

› 2000+ hospitals & health systems

› 80+ health information exchanges

› 200,000+ Physicians

› 1900 Payers

› 21Million + Patient records

› 50,000 + Retail Pharmacies

Appendix – Management Team (DS)

Appendix – Management Team (TS)