Switching to a "fee for service" business model has helped wholesale pharmaceuticals distributor and industry giant McKesson (NYSE:MCK) pump up notoriously low operating margins. The stock has fattened itself up, too, doubling from the low that it set roughly a year ago.

On Tuesday, the company reported second-quarter results that were very pleasing indeed. While revenue rose 8% over the year-ago quarter, net income from continuing operations increased by a whopping 79%. Even more impressive, year-to-date cash from operations has increased more than fivefold to $2 billion.

Accounting for the big earnings increase is a half-percentage-point increase in operating margins to 1.12%. With quarterly sales at $21.6 billion, that seemingly small increase translates into 79 million greenbacks from continuing operations. Also to its merit, McKesson sports a nice-looking balance sheet: It ended the latest quarter with net cash (cash minus total debt) of $2 billion.

So let's take a little look into the future. While analysts expect the drug wholesale industry to grow earnings 12% annually for the next five years, they also expect McKesson to chip in 13.5% annual growth. I expect that expanding margins, as McKesson's hones its new business model, will certainly help produce those results.

McKesson's updated guidance for fiscal 2006 (which ends in March) is $2.25 to $2.40 -- within the $2.30 range that analysts are expecting. The stock is priced at 19.8 times analysts' 2006 expectations.

The story at McKesson is cash flow. Year to date, the company has used $575 million for acquisitions, $290 million for share repurchases, and $36 million for dividends. There is plenty of cash lying around for the company to substantially boost its paltry 0.5% dividend. But for now, acquisitions and share repurchases are the order of the day.

Because McKesson is a broadly based supplier, it avoids the roller-coaster impact that specific drug successes and failures have on drug-developer stocks. If you're looking for a conservative ride on the American demographic shift of an aging population that needs more medications, this company may be for you.

Seeking great companies for your investment dollars? Let Motley Fool co-founders David and Tom Gardner find the next big winner for you when you subscribe to the Motley Fool Stock Advisor newsletter. A free, no-risk trial is yours for the taking.

Fool contributor W.D. Crotty does not own any shares of the companies mentioned. Click here to see The Motley Fool's disclosure policy.