On the four Ms, McKesson Corporation earns 78 for management and 67 for moat. The management score rests on a return on invested capital of 31.5% and a gross margin of 3.6% — figures that describe a business earning a respectable return on what it employs. Shareholder equity is negative, so the debt-to-equity figure is not meaningful here — usually the mark of heavy buybacks rather than distress, but worth checking.
Three independent anchors set the price worth paying. Growth is modelled at 11.1% a year, the rate measured from the filings. The exit multiple assumed is 22.2x. That produces an intrinsic value of $588.65, a 10-CAP price of $535.69 and a payback time price of $708.73, with the value zone set at the highest of the three, $708.73. Today's price of $898.82 is 27% above it.
A wonderful business at the wrong price is still the wrong price. McKesson Corporation scores well on the business and poorly on the entry point, which is the most common shape in a long bull market.
| Price | $898.82 |
| Market cap | $105.2B |
| P/E ratio | 24.1x |
| Return on invested capital | 31.5% |
| Gross margin | 3.6% |
| Debt to equity | -3.97x |
| Free cash flow yield | 5.1% |
| Growth rate used | 11.1% |
| Growth rate measured | 11.0% |
| Exit multiple assumed | 22.2x |
| Company | Moat | Buy price |
| Stryker Corporation (SYK) | 93 | $175.37 |
| CVS Health Corporation (CVS) | 37 | $115.44 |
| Medtronic plc (MDT) | 41 | $52.16 |
| HCA Healthcare Inc. (HCA) | 75 | $387.86 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of McKesson Corporation rather than accepting ours.