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Moody's affirms McKesson's ratings with stable outlook

Moody's affirmed McKesson Corp.'s senior unsecured rating at Baa2, with strong cash flow of about $2.5 billion expected after dividends per year over the next three years.

The outlook on the ratings is stable.

Irving, Texas-based McKesson is one of several companies currently implicated in litigation for their alleged role in the U.S. opioid crisis in multiple states. The potential liabilities for McKesson specifically come from allegations that the company failed to monitor and flag suspicious orders placed by its pharmacy customers, Moody's said.

The company faces a high social risk due to uncertain liability relating to the opioid crisis, Moody's said.

Moody's said that the rating is based on the company's significant revenue base and its position as one of the top drug distributing companies in the U.S. The rating agency expects McKesson will prioritize debt repayment to restore its credits metrics in the event of a large opioid litigation settlement.

Moody's said McKesson is likely to maintain moderate financial leverage supported by its strong cash flow. The ratings are limited due to thin operating margins coupled with a high customer concentration, the agency reported. Leverage is a measure of debt a firm uses to finance its operations.

Operating margins are expected to be constrained due to continued generic pricing pressure and reduced branded drug inflation over the next 12 to 18 months, Moody's added.

The rating agency views McKesson's retail pharmacy business outside the U.S. as risky due to operations in highly price-regulated markets.

Moody's stable outlook reflects its view that McKesson will sustain moderate leverage. In addition, the agency expects that the company will pursue a prudent approach to acquisitions and share repurchases until there is greater certainty regarding the opioid liabilities.