MCK

McKesson is a scale-advantaged pharmaceutical distributor whose economics are defined by razor-thin margins on enormous volume — 3.6% gross, 1.5% operating, 1.2% net on $403B of FY2026 revenue. That is the business model, not a weakness: the moat is logistics scale and supplier float, evidenced by current liabilities ($67.0B) running ahead of current assets ($57.2B) because the company funds itself on the balance sheets of its suppliers. Growth is real and durable — revenue has climbed from $264B (FY2022) to $403B (FY2026), a five-year march higher, up 12.4% in the latest year, while diluted EPS jumped 49.2% to $38.38. Part of that EPS surge is quality mix-shift and cost discipline (operating income +40.5%) and part is the normalization of bad-debt expense, which the 10-K shows swinging from an $819M charge in FY2024 (including a $725M Rite Aid bankruptcy hit) to just $100M in FY2026, cutting the allowance ratio from 2.1% to 0.8% of receivables — so the forward growth rate will be tamer than 49%.

The capital-return engine is the core of the thesis. Operating cash flow of $6.16B against just $436M of capex leaves roughly $5.7B of free cash flow — about a 6% yield on the $92.3B market cap — and management is funneling it into shrinking the share count: $4.75B of buybacks (up 51%) took shares down 3.9% to 120M, plus $381M of dividends. The negative stockholders' equity of -$2.17B looks alarming but is a feature of that aggressive repurchase program, not distress: retained earnings are a healthy and rising $22.3B (+24.4%), so the deficit is treasury stock, not accumulated losses. Leverage is conservative — $6.53B long-term debt is barely one year of operating cash flow.