McKesson CorporationMCKNYSE

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DCF Valuation

⚠️Model Warnings

•Terminal value represents 91% of enterprise value. Valuation highly sensitive to long-term assumptions.

DCF Valuation Summary

Strong Buy

Fair Value: $10,615.27 per share(market-calibrated)

+966.1%

Upside to Fair Value

Current

$995.69

Pure Model

$12,002.72

Fair Value

$10,615.27

Bull Case

$16,596.58

Bear Case

$8,818.11

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $12,002.72.

What's Driving This Ratingfor MCK

✓

CapEx already efficient

CapEx at 0.18% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 0.63% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $94.8B (13.65% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 13.80% revenue growth in Year 1, fading to 7.37% by Year 5 and 3.00% by Year 10. Revenue reaches $694.2B by Year 10 (vs $359.1B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 76.72% indicates efficient cash generation. FCF reaches $73.8B by Year 10 (10.62% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.35

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.09%

Cost of Debt

Pre-tax Cost of Debt3.09%

Tax Rate20.14%

After-tax Cost of Debt2.47%

Equity Weight (E/V)94.49%

Debt Weight (D/V)5.51%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (94.49% × 6.09%) + (5.51% × 2.47%)

= 5.89%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$408.6B	$478.4B	$550.7B	$619.5B	$694.2B
EBIT	$2.6B	$3.0B	$3.4B	$47.1B	$94.8B
Tax	$515M	$603M	$694M	$9.5B	$19.1B
NOPAT	$2.0B	$2.4B	$2.8B	$37.6B	$75.7B
+ Depreciation	$802M	$940M	$1.1B	$1.2B	$1.4B
- Capex	$747M	$874M	$1.0B	$1.1B	$1.3B
- Δ NWC	$5.0B	$3.6B	$3.8B	$3.3B	$2.0B
Free Cash Flow	-$2.9B	-$1.2B	-$954M	$34.4B	$73.8B
Discount Factor	0.944	0.842	0.751	0.670	0.564
Present Value	-$2.7B	-$981M	-$717M	$23.0B	$41.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$73.8B

Terminal Growth Rate3.00%

WACC5.89%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$2.6T

PV of Terminal Value$1.5T

Exit Multiple Method

Year 10 EBITDA$96.1B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$2.3T

PV of Terminal Value$1.3T

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$139.7B

PV of Terminal Value$1.5T

Enterprise Value$1.6T

(-) Net Debt$1.7B

Equity Value$1.6T

Shares Outstanding127M

Price per Share$12,707.31

Exit Multiple Method

PV of Projected FCFs$139.7B

PV of Terminal Value$1.3T

Enterprise Value$1.4T

(-) Net Debt$1.7B

Equity Value$1.4T

Shares Outstanding127M

Price per Share$11,298.13

Pure Model Fair Value

$12,002.72

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.89%	$17,361.76	$16,601.95	$15,878.86	$15,190.52	$14,535.13
4.89%	$13,122.60	$14,482.18	$15,878.86	$15,190.52	$14,535.13
5.89%	$10,467.97	$11,122.28	$12,002.72	$13,251.02	$14,535.13
6.89%	$8,743.63	$9,113.12	$9,577.51	$10,178.74	$10,987.77
7.89%	$7,496.71	$7,726.53	$8,003.31	$8,343.10	$8,770.15

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$8,818.11

785.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.44

Base Case

$12,002.72

1105.5% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.35

Bull Case

$16,596.58

1566.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth13.80%

Year 3 Revenue Growth8.19%

Year 5 Revenue Growth7.37%

Year 7 Revenue Growth5.62%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin0.63%

Terminal EBIT Margin20.00%

Tax Rate20.14%

Historical Capex / Rev0.18%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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