McKesson (MCK) recently delivered the coveted 'triple play' in its latest earnings report:

• A positive earnings surprise

• A positive revenue surprise, and

• Increased guidance from management

This prompted analysts to revise their estimates significantly higher for both 2014 and 2015, sending the stock to a Zacks Rank #1 (Strong Buy).

McKesson Corporation is primarily a distributor and wholesaler of pharmaceutical products. The company distributes pharmaceuticals, health care supplies and consumer health products in North America.

Second Quarter Results

McKesson reported better-than-expected results for the second quarter of its fiscal 2014 on October 24. Adjusted earnings per share came in at $2.27, well ahead of the Zacks Consensus Estimate of $2.03. It was a 19% increase over the same quarter last year.

Revenue rose 11% year-over-year to $32.954 billion, beating the consensus of $32.371 billion. Its largest segment, Distribution Solutions, saw revenues climb 11%, driven mainly by strong growth in U.S. pharmaceutical direct distribution and services revenues due to market growth, business mix and one additional sales day.

Income from continuing operating rose 20% year-over-year as the operating margin expanded from 1.5% to 2.4%.

Increased Guidance

In the Q2 press release, McKesson raised its full year fiscal 2014 EPS guidance. The company now expects adjusted earnings per share from continuing operations between $8.40 and $8.70, up from previous guidance of $8.05-$8.35. That was also well above consensus at the time, prompting analysts to revise their estimates higher for both 2014 and 2015.

This sent the stock to a Zacks Rank #1 (Strong Buy).

You can see the dramatic rise in estimates in the 'Price & Consensus' chart:

Based on consensus estimates, analysts project a 20% increase in EPS in 2014 and 16% growth in 2015.

Part of this growth will come organically, but McKesson is also growing via acquisition. The company recently announced plans to acquire Celesio, a European health care products distributor, for more than $8 billion.

Valuation

Shares of McKesson have been on fire in 2013, surging more than 60% year-to-date. But the valuation picture still looks reasonable with the stock trading around 17x 12-month forward earnings. While that is above its 10-year historical median of 14x, it is below the industry median of 19x.

Its price to sales ratio of 0.3 is also below its peer at 0.4.

The Bottom Line

With strong top and bottom line growth, rising earnings estimates and reasonable valuation, McKesson still offers investors attractive upside potential.