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Fitch affirms McKesson's ratings on stable drug distributor market

Fitch Ratings affirmed McKesson Corp.'s long- and short-term issuer default ratings at BBB+ and F2, respectively.

The outlook on the rating is stable.

The ratings, which apply to about $9.8 billion of debt as of June 30, reflect McKesson's stable operating profile and consistent cash generation.

Fitch cited steady pharmaceutical demand, along with the oligopolistic drug distribution industry in the U.S. and in most of Western Europe, as key rating drivers. McKesson is expected to maintain its leading market positions in the U.S., Canada and Europe.

The ratings also reflect the potential impact of drug pricing changes in the U.S., talks for which are ongoing. Likewise, Europe's diverse regulatory and reimbursement systems are seen as potential risks to McKesson's operations.

Fitch expects McKesson's revenue to increase on a 4% compound annual growth rate to 2022 due to market growth, recent business acquisitions and expanded business in North America.

However, McKesson is expected to have lower EBITDA margins in fiscal 2019 — remaining flat thereafter until 2022 — due to lower-branded drug price appreciation, product-mix changes and heightened competitive pressure. Fitch said McKesson's ongoing cost-reduction programs may help offset this acute margin pressure.

San Francisco-based McKesson provides pharmaceuticals, medical surgical supplies and technology solutions to pharmacies and health systems.