McKesson (NYSE:MCK) versus West Pharmaceutical Services (NYSE:WST) Critical Analysis

McKesson (NYSE:MCK) and West Pharmaceutical Services (NYSE:WST) are both large-cap medical companies, but which is the better business? We will contrast the two companies based on the strength of their institutional ownership, dividends, valuation, earnings, risk, analyst recommendations and profitability.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for McKesson and West Pharmaceutical Services, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
McKesson	0	4	12	1	2.82
West Pharmaceutical Services	0	4	9	2	2.87

McKesson currently has a consensus price target of $887.69, suggesting a potential upside of 0.99%. West Pharmaceutical Services has a consensus price target of $349.20, suggesting a potential upside of 25.92%. Given West Pharmaceutical Services’ stronger consensus rating and higher probable upside, analysts plainly believe West Pharmaceutical Services is more favorable than McKesson.

Dividends

McKesson pays an annual dividend of $3.28 per share and has a dividend yield of 0.4%. West Pharmaceutical Services pays an annual dividend of $0.88 per share and has a dividend yield of 0.3%. McKesson pays out 10.2% of its earnings in the form of a dividend. West Pharmaceutical Services pays out 13.0% 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 has increased its dividend for 17 consecutive years. McKesson is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares McKesson and West Pharmaceutical Services”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
McKesson	$387.09 billion	0.28	$3.30 billion	$32.13	27.36
West Pharmaceutical Services	$3.02 billion	6.61	$492.70 million	$6.75	41.09

McKesson has higher revenue and earnings than West Pharmaceutical Services. McKesson is trading at a lower price-to-earnings ratio than West Pharmaceutical Services, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

McKesson has a beta of 0.51, meaning that its share price is 49% less volatile than the S&P 500. Comparatively, West Pharmaceutical Services has a beta of 1.08, meaning that its share price is 8% more volatile than the S&P 500.

Profitability

This table compares McKesson and West Pharmaceutical Services’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
McKesson	0.84%	-196.66%	5.66%
West Pharmaceutical Services	16.29%	18.16%	13.45%

Institutional and Insider Ownership

85.1% of McKesson shares are owned by institutional investors. Comparatively, 93.9% of West Pharmaceutical Services shares are owned by institutional investors. 0.1% of McKesson shares are owned by insiders. Comparatively, 0.5% of West Pharmaceutical Services shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Summary

West Pharmaceutical Services beats McKesson on 11 of the 18 factors compared between the two stocks.

About McKesson

McKesson Corporation provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International. The U.S. Pharmaceutical segment distributes branded, generic, specialty, biosimilar and over-the-counter pharmaceutical drugs, and other healthcare-related products. This segment also offers practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices; and consulting, outsourcing, technological, and other services, as well as sells financial, operational, and clinical solutions to pharmacies. The RxTS segment serves biopharma and life sciences partners, and patients to address medication challenges for patients by working across healthcare; connects patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies to deliver innovative solutions to help people get the medicine needed to live healthier lives; and provides prescription price transparency, benefit insight, dispensing support, third-party logistics, and wholesale distribution support services. The Medical-Surgical Solutions segment offers medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. The International segment provides distribution and services to wholesale, institutional, and retail customers in Europe and Canada. McKesson Corporation was founded in 1833 and is headquartered in Irving, Texas.

About West Pharmaceutical Services

West Pharmaceutical Services, Inc. designs, manufactures, and sells containment and delivery systems for injectable drugs and healthcare products in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. It operates in two segments, Proprietary Products and Contract-Manufactured Products. The Proprietary Products segment offers stoppers and seals for injectable packaging systems; syringe and cartridge components, including custom solutions for the needs of injectable drug applications, as well as administration systems that enhance the safe delivery of drugs through advanced reconstitution, mixing, and transfer technologies; and films, coatings, washing, and vision inspection and sterilization processes and services to enhance the quality of packaging components. This segment also provides drug containment solutions, including Crystal Zenith, a cyclic olefin polymer in the form of vials, syringes, and cartridges; and self-injection devices; and a range of integrated solutions, including analytical lab services, pre-approval primary packaging support and engineering development, regulatory expertise, and after-sales technical support. This segment serves biologic, generic, and pharmaceutical drug companies. The Contract-Manufactured Products segment is involved in the design, manufacture, and automated assembly of devices used in surgical, diagnostic, ophthalmic, injectable, and other drug delivery systems, as well as consumer products. The company serves pharmaceutical, diagnostic, and medical device companies. It sells and distributes its products through its sales force and distribution network, contract sales agents, and regional distributors. West Pharmaceutical Services, Inc. was founded in 1923 and is headquartered in Exton, Pennsylvania.