McKesson Corporation (NYSE: MCK) and CVS Health Corporation (NYSE:CVS) are both large-cap medical companies, but which is the superior business? We will contrast the two businesses based on the strength of their institutional ownership, dividends, risk, earnings, analyst recommendations, valuation and profitabiliy.

Analyst Ratings

This is a breakdown of recent recommendations for McKesson Corporation and CVS Health Corporation, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
McKesson Corporation 1 8 7 0 2.38
CVS Health Corporation 0 6 11 0 2.65

McKesson Corporation currently has a consensus target price of $169.50, indicating a potential upside of 12.20%. CVS Health Corporation has a consensus target price of $91.64, indicating a potential upside of 15.80%. Given CVS Health Corporation’s stronger consensus rating and higher possible upside, analysts clearly believe CVS Health Corporation is more favorable than McKesson Corporation.

Institutional & Insider Ownership

89.1% of McKesson Corporation shares are held by institutional investors. Comparatively, 81.9% of CVS Health Corporation shares are held by institutional investors. 1.2% of McKesson Corporation shares are held by company insiders. Comparatively, 0.6% of CVS Health Corporation shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Volatility & Risk

McKesson Corporation has a beta of 1.13, meaning that its share price is 13% more volatile than the S&P 500. Comparatively, CVS Health Corporation has a beta of 0.91, meaning that its share price is 9% less volatile than the S&P 500.

Earnings and Valuation

This table compares McKesson Corporation and CVS Health Corporation’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
McKesson Corporation $199.85 billion 0.16 $3.94 billion $22.42 6.74
CVS Health Corporation $180.79 billion 0.45 $12.32 billion $5.01 15.80

CVS Health Corporation has higher revenue, but lower earnings than McKesson Corporation. McKesson Corporation is trading at a lower price-to-earnings ratio than CVS Health Corporation, indicating that it is currently the more affordable of the two stocks.

Dividends

McKesson Corporation pays an annual dividend of $1.12 per share and has a dividend yield of 0.7%. CVS Health Corporation pays an annual dividend of $2.00 per share and has a dividend yield of 2.5%. McKesson Corporation pays out 5.0% of its earnings in the form of a dividend. CVS Health Corporation pays out 39.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. McKesson Corporation has increased its dividend for 9 consecutive years and CVS Health Corporation has increased its dividend for 4 consecutive years.

Profitability

This table compares McKesson Corporation and CVS Health Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
McKesson Corporation 2.42% 25.76% 4.34%
CVS Health Corporation 2.93% 17.47% 6.58%

Summary

CVS Health Corporation beats McKesson Corporation on 9 of the 17 factors compared between the two stocks.

About McKesson Corporation

McKesson Corporation (McKesson) is engaged in delivering pharmaceuticals, medical supplies and healthcare information technology. The Company operates through two segments: McKesson Distribution Solutions and Technology Solutions. The McKesson Distribution Solutions segment distributes drugs and equipment, and health and beauty care products across North America and internationally. The Distribution Solutions segment provides pharmaceutical solutions for biotech and pharmaceutical manufacturers, and practice management, technology, clinical support and business solutions to oncology and other specialty practices operating in the community setting. The Technology Solutions segment delivers clinical, patient care, financial, supply chain and strategic management software solutions, as well as connectivity, outsourcing and other services. Its McKesson Health Solutions portfolio includes ClarityQx, which is a payment technology.

About CVS Health Corporation

CVS Health Corporation, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Pharmacy Services Segment provides a range of pharmacy benefit management (PBM) solutions to its clients. As of December 31, 2016, the Retail/LTC Segment included 9,709 retail locations (of which 7,980 were its stores that operated a pharmacy and 1,674 were its pharmacies located within Target Corporation (Target) stores), its online retail pharmacy Websites, CVS.com, Navarro.com and Onofre.com.br, 38 onsite pharmacy stores, its long-term care pharmacy operations and its retail healthcare clinics.

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