McKesson Stock Hits Record High on Earnings Beat, DeepValue Urges Caution Amid Valuation and Litigation Risks

What happened

McKesson's stock surged to a new 52-week high of $964.94 and closed at $958.92, up from $822.00, driven by a stronger-than-expected earnings report that continues the momentum narrative highlighted in DeepValue's analysis. This rally pushes the stock beyond DeepValue's trim threshold of $880, reinforcing concerns about limited upside after a 41% price increase over the past year. While the earnings beat likely reflects robust oncology and specialty drug distribution growth, DeepValue notes that this performance is heavily aided by acquisitions, one-time gains, and aggressive buybacks, masking underlying margin pressures. Persistent risks, such as the revived $2.5 billion West Virginia opioid lawsuit and elevated valuation multiples around 32.6x trailing EPS, remain unaddressed and could disrupt capital returns. Consequently, investors face a stock that has become increasingly crowded and vulnerable to any operational or legal disappointment.

Implication

The earnings-driven surge validates McKesson's near-term execution but heightens valuation concerns, with the stock now trading above DeepValue's $880 trim level, increasing downside risk. Ongoing opioid litigation, including the West Virginia case, threatens to impose additional cash obligations beyond the $5.7 billion accrued, potentially curbing buybacks and elevating leverage. Growth in oncology and specialty segments, while strong, relies on acquisition-driven gains rather than pure organic volume, raising questions about sustainability amid regulatory pressures. Market sentiment is crowded, with technical indicators showing extended momentum that leaves little room for error if guidance disappoints or legal outcomes worsen. Therefore, reducing exposure is advisable until shares pull back to more attractive levels around $720 or clearer evidence emerges that growth and risk factors justify current premiums.

Thesis delta

The core thesis remains unchanged: McKesson's stock discounts high expectations for 13-16% EPS growth while facing significant legal and operational headwinds. The new high merely exacerbates overvaluation, as the stock now surpasses DeepValue's trim threshold without altering the fundamental risks of acquisition-dependent growth and opioid liabilities. No shift in the investment call is warranted; instead, the rally reinforces the need for caution and potential profit-taking.