- Firm reports a Q2 earnings beat.
- Firm now well on course to report 6%+ annual earnings growth.
- We surmise it is too early to bail here.
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McKesson Corporation (NYSE:MCK) is now up well over 30% since the start of the year. At its lows of around $115 a share, we were holding a paper loss temporarily, but now, our position has firmly returned back into the black. In the company's latest second quarter, McKesson announced an earnings of $3.60, which was an earnings beat by $0.01. Top-line sales came in at $57.62 billion, which again was a beat by some $2.56 billion.
When we went long McKesson many moons ago, there was plenty to like at the time. For one, McKesson had a keen valuation, low debt, and growing revenues, along with aggressive buybacks. Remember growing earnings is the number one reason why stocks rally on wall street, and growing sales is the number one reason which enables sustained earnings growth. Although growth had slowed significantly at the time, we believed that the risk justified the reward when one considered the valuation we were able to pick shares up at.
Sales growth returned with vengeance in Q2 as McKesson reported almost 9% top-line growth. Although shares may look fairly valued from an asset standpoint at present, the present sales multiple of 0.1 looks very attractive.
When our value plays bounce back aggressively, we always try to ascertain where would be a good level to start liquidating our holdings. Therefore, from this standpoint, let's go through some of McKesson's technicals and financials to get a read on how expensive we believe shares are at present.
On the long-term chart, we can see that McKesson now seems to have negated the long-term potential descending triangle which was potentially in play since the 2015 top. Recent share price action has propelled shares above both the 50-month moving average as well as above that monthly trend-line. Furthermore, we have a convincing crossover on the MACD indicator with the crossover taking place well below the zero line.
Long-term charts are essential, in our opinion, for long-term investors. In fact, the upmove shares have enjoyed over the past 11 months or so has resulted in long-term momentum finally turning bullish. That bearish multi-year trend-line should now act as a support. Suffice it to say, the long-term trend seems to have finally changed at McKesson.
