Adding a Covid-19 Vaccine Distributor to the Bullpen

by Dr. Malio West, CMA, PMP

Keep your business going during COVID-19 Recession.

The effects of the COVID-19 pandemic is seen in every aspect and sector of global activities.




Following this morning's initiation of Crown Castle (CCI) , we already have a new idea to add to our Bullpen. The company we will be watching is McKesson (MCK), which along with Cardinal Health (CAH) and AmerisourceBergen (ABC) represent the "Big Three" pharmaceutical distributors in the United States.


We are interested in McKesson because of its major role in the distribution of Covid-19 vaccines. Back in August, in the announcement here, McKesson specifically was selected to participate in Operation Warp Speed and this choice seemed like a bit of a no-brainer for the government. Not only is McKesson the largest of "Big Three," the company also has plenty of experience when it comes to vaccine distribution. In fact, McKesson played an integral role distributing the H1N1 vaccine during the H1N1 pandemic in 2009-2010, and the CDC already has an existing contract in place with McKesson to support vaccine distribution for the CDC's Vaccines for Children Program. Additionally, late last month McKesson won a separate contract, to supply Covid-19 vaccine supply kits for the healthcare workers who will be administering the vaccines.

How much of an impact will the distribution of the Covid-19 vaccine have on McKesson's earnings? When the company reported excellent quarterly results earlier this month and raised its full-year outlook, management said its new guidance assumes approximately $0.15 to $0.20 of adjusted earnings per share "related to the kitting and storage of ancillary supplies for future Covid-19 vaccines." If MCK's estimates end up being too low because the vaccine distribution is still underappreciated, we think the shares could still have plenty of more upside, especially when you consider how this is a stock that only trades at roughly 10-11x forward earnings.

Now one thing to be watchful of is the Death Star -- Amazon (AMZN). After Amazon announced yesterday its new Pharmacy Services offering, shares of McKesson dropped more than 5% on fears that a substantial shift to Amazon's online pharmacy (which partners with AmerisourceBergen) will be a headwind to McKesson. However, in a research note published this morning by Goldman Sachs, the analysts added MCK to their Conviction List and said, "we don't see this as meaningfully impactful for any of the group [Distributors], particularly given our view that we don't think AMZN will gain a significant amount of market share in short order." Of course, the existential threat of Amazon could put an overhang on multiples, but we see Amazon's encroachment into Pharmacy as more of a market-share risk to retail pharmacy companies like CVS Health (CVS).

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Dr. Malio West, CMA, PMP

Dr. West is a US Navy Veteran that served during Desert Shield/Desert Storm in Kuwait City. After the US Navy, Dr. West spent time in Singapore, Tokyo, Auckland, and Hong Kong working in international accounting focused on the financial services industry, at an executive level.

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Keep your business going during COVID-19 Recession.

The COVID-19 global pandemic has resulted in severe public health emergency in all the nations across the globe. There are several collected data on the severity of COVID-19 and age-specific patterns of contraction to give explicit information about the impacts of the pandemic on the global health.


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