Drug distribution firm McKesson (NYSE:MCK) closed out its fiscal year on Monday on a bullish note. Investors applauded its full-year profitability and outlook, but a lower overall stock market has kept the shares from reaching new highs. At current levels the stock is worth a further look.

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Fourth Quarter Trends
Revenues increased a modest 1.5% to $26.6 billion. The flagship drug distribution solutions business unit accounted for the vast majority, or 97% of the quarterly top line, which consists mostly of the U.S. business and primary customers including hospitals and retail drugstores including CVS (NYSE:CVS) and Rite Aid (NYSE:RAD). McKesson also operates in Canada and reported robust sales growth of 23%.

McKesson also runs a technology solutions segment that helps hospitals such as Health Management Associates (NYSE:HMA) and physicians use software and supply chain services to help run their businesses more efficiently. The unit only accounted for 3% of revenues, but made up 15% of total company operating profit of $577 million, which was still a minuscule 2.2% of sales. A reduction in non-operating charges pushed net income ahead 24% to $348 million, or $1.26 per diluted share.

Full-Year Recap
Full year revenues also increased 2%, reaching $108.7 billion for the fiscal year. A lack of litigation charges pushed operating income ahead 68% to $2 billion and net income reached $1.3 billion, or $4.62 per diluted share. Management touted its double-digit earnings increase and $2.3 billion in operating cash flow, which was nearly double the previous year. Subtracting out minimal levels of CAPEX and free cash flow came in at approximately $1.9 billion, or over $7 per diluted share.

Earnings and Outlook
Management expects earnings for the coming year between $4.72 and $4.92 as well as "strong operating cash flow." Analysts currently project 3.5% top-line growth to nearly $113 billion.

Bottom Line
McKesson felt minimal ill-effects from the economic recession brought on by the credit crisis. Going forward, it should be able to grow sales in the low single digits and leverage this into high single digit earnings and cash flow growth. Its technology solutions also injects added profitability into the distribution business and boosts net profits over 1% of sales. At a forward P/E of only 14, the stock is worth a further look. (For more stock ideas, check out Utility Stocks With Dividends To Spare.)

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Tickers in this Article: MCK, ABC, CVS, RAD, HMA

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