Shares of Cardinal Health, Inc. (CAH Quick QuoteCAH - Free Report) scaled a new 52-week high of $62.15 on Apr 8, before closing the session marginally lower at $61.90.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 1.7% compared with 9.8% growth of the industry and 8.9% rise of the S&P 500 composite.

Over the past five years, the company registered earnings gain of 2.2% compared with the industry’s 12.8% growth. The company’s long-term expected growth rate of 4.6% compares with the industry’s growth projection of 12.5%. Cardinal Health’s earnings surpassed the Zacks Consensus Estimate in one of the trailing four quarters and missed the same in the other three, the average surprise being -9.2%.

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Cardinal Health is witnessing an upward trend in its stock price, prompted by its diversified product portfolio. A solid second-quarter fiscal 2022 performance, along with its strategic tie-ups, is expected to contribute further. However, stiff competition and the probability of losing a major customer persist.

Let’s delve deeper.

Key Growth Drivers

Diversified Product Portfolio: Investors are upbeat about Cardinal Health’s Medical and Pharmaceutical offerings, which provide the company a competitive edge in the niche space. In November 2021, the company announced that its business — WaveMark Supply Management and Workflow Solutions — can now be implemented in clinical labs throughout the United States.

Per the fiscal second-quarter 2021 earnings call, the company is boosting its core Medical and Pharmaceutical Distribution, and product capabilities as it continues to adapt resilient business models for the future. The company is making strategic investments in its IT infrastructure to improve customer experience and digital abilities. It is investing in its differentiated portfolio to drive strategic long-term growth in key areas.

Partnerships: Investors are optimistic about Cardinal Health’s strategic deals over the past few months. The company, in February, announced that it will leverage Kinaxis Inc.’s RapidResponse platform to increase medical product visibility and supply chain agility.

Per the fiscal second-quarter 2022 earnings release, the company collaborated with Ember Technologies to offer a cold chain solution that ensures product integrity and security across the supply chain, while substantially lowering shipping wastage in the transport of temperature-sensitive medicines.

Strong Q2 Results: Cardinal Health’s impressive second-quarter fiscal 2022 results buoy optimism. The company’s robust segmental performance in the quarter is encouraging. It witnessed revenue growth in its Pharmaceutical business in the quarter under review. Per management, sustained growth in the Pharma segment, solid cash flow generation and capital deployment, as well as progress toward its $750-million enterprise cost savings goal buoy optimism.

Downsides

Probabilities of Loss of a Major Customer: Cardinal Health faces the risk of losing considerable business if it loses a major customer, which in turn will severely impair its revenues in the future. In this regard, post establishing a generic sourcing joint venture with CVS Caremark in 2014, Cardinal Health largely depends on the former for over 20% of its revenues. Collectively, five of Cardinal Health’s main customers, including CVS, accounted for as much as 40% of its revenues.

Stiff Competition: Cardinal Health operates in a highly competitive environment in the distribution of pharmaceuticals and consumer healthcare products, as well as in the manufacturing and distribution of medical devices and surgical products. The company also competes on many levels, including price and service offerings.

Key Picks

A few stocks from the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN Quick QuoteAMN - Free Report) , Edwards Lifesciences Corporation (EW Quick QuoteEW - Free Report) and Henry Schein, Inc. (HSIC Quick QuoteHSIC - Free Report) .

AMN Healthcare has an estimated long-term growth rate of 16.2%. AMN’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 20%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has gained 36.7% against the industry’s 55.2% fall over the past year.

Edwards Lifesciences, carrying a Zacks Rank #2 (Buy), has an estimated long-term growth rate of 13.9%. EW’s earnings surpassed estimates in three of the trailing four quarters, the average surprise being 6.5%.

Edwards Lifesciences has gained 44.4% compared with the industry’s 0.9% growth over the past year.

Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently has a Zacks Rank #2.

Henry Schein has gained 29.1% compared with the industry’s 9.8% growth over the past year.