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Reasons to Retain Cardinal Health (CAH) in Your Portfolio Now
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Cardinal Health Inc. (CAH - Free Report) is well-poised for growth, given its acquisition-driven strategy, a diversified product portfolio and a robust pharmaceutical segment. However, inflationary pressure remains a concern.
Shares of this Zacks Rank #3 (Hold) company have lost 7.1% in the year-to-date period.
CAH, with a market capitalization of $23.28 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 7.6% compared with the industry's 5.7%. It anticipates earnings to improve 12% over the next five years.
Image Source: Zacks Investment Research
What's Driving CAH’s Performance?
Strength in Pharmaceutical Segment: Investors are upbeat about Cardinal Health’s Medical and Pharmaceutical offerings, which provide the company with a competitive edge in the niche space.
The segment's products and services comprise pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services, which are expected to majorly drive the quarters ahead. For the past few quarters, the segment has been acting as a key catalyst when it comes to driving growth. In the second quarter of fiscal 2024, pharmaceutical revenues amounted to $53.5 billion, up 12% on a year-over-year basis. The performance reflects branded pharmaceutical sales growth from Pharmaceutical Distribution and Specialty Solutions customers.
For fiscal 2024, management anticipates 10-12% revenue growth to represent the strong branded pharmaceutical sales growth witnessed from large customers.
Long-term Supply Agreements: Cardinal Health is also pursuing growth via joint ventures and long-term supply agreements with several firms, which have likely kept the investors interested. The company entered a long-term strategic agreement with Henry Schein, under which the latter purchased Cardinal Health’s medical supplies for physician practices. The collaboration is expected to drive core sales and prove accretive to Cardinal Health’s earnings in the long term.
The signing of a 15-year agreement with Bayer Healthcare for the contract manufacturing of Xofigo is significantlypositive. In our opinion, this will help the company leverage its expertise in the nuclear pharmacy industry to expand access to a therapeutic agent and increase the use of radiopharmaceuticals in the United States and Canada.
Strong Q3 Results: Cardinal Health’s impressive third-quarter fiscal 2024 results buoy optimism. The company’s robust top-line results and solid performance in the Pharmaceutical segment were encouraging. Per management, the segmental performance was driven by brand and specialty pharmaceutical sales growth from existing customers.
In the third quarter of fiscal 2024, gross profit increased 9.1% year over year, driven by segmental growth.
Notable Developments
In January 2024, the company announced that it has entered into a definitive agreement to acquire Specialty Networks, a technology-enabled multi-specialty group purchasing and practice enhancement organization for $1.2 billion in cash. Specialty Networks creates clinical and economic value for independent specialty providers and partners across multiple specialty GPOs.
What's Weighing on the Stock?
Cardinal Health faces the risk of losing considerable business in case of loss of a major customer, which, in turn, will severely impair its revenues in the future. In this regard, post the establishment of a generic sourcing joint venture with CVS Caremark in 2014, Cardinal Health largely depends on the former for more than 20% of its revenues. Collectively, five of Cardinal Health’s main customers, including CVS, accounted for as much as 40% of its revenues.
Cardinal Health’s Monoject syringes got unfavorable FDA recommendations in March, following reports of delay in therapy as well as inaccurate therapy (overdose or underdose) when used with a syringe pump or a patient-controlled analgesia pump. Any further regulatory setback may raise concerns.
Estimate Trend
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $225.8 billion, indicating a 10.2% improvement from the previous year’s level.
The Zacks Consensus Estimate for adjusted earnings per share (EPS) is pinned at $7.35, indicating a 26.9% increase from the year-ago reported numbers. The consensus estimate for adjusted EPS has improved 1% in the past 30 days.
Key Picks
Some better-ranked stocks in the broader medical space that have announced quarterly results are DaVita (DVA - Free Report) , Stryker Corporation (SYK - Free Report) and Universal Health Services (UHS - Free Report) .
DaVita, sporting a Zacks Rank of 1 (Strong Buy) at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita’s shares have gained 44% compared with the industry’s 20.4% growth in the past year.
Stryker, carrying a Zacks Rank of 2 (Buy) at present, has an estimated long-term growth rate of 10.6%. SYK’s earnings surpassed estimates in each of the trailing four quarters, with the average being 4.9%.
Stryker has gained 13.2% against the industry’s 3.1% decline in the past year.
Universal Health Services has an Earnings ESP of +2.91% and a Zacks Rank of 2, at present. UHS has an estimated earnings growth rate of 30.5% for 2024.
UHS’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.12%.
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Reasons to Retain Cardinal Health (CAH) in Your Portfolio Now
Cardinal Health Inc. (CAH - Free Report) is well-poised for growth, given its acquisition-driven strategy, a diversified product portfolio and a robust pharmaceutical segment. However, inflationary pressure remains a concern.
Shares of this Zacks Rank #3 (Hold) company have lost 7.1% in the year-to-date period.
CAH, with a market capitalization of $23.28 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 7.6% compared with the industry's 5.7%. It anticipates earnings to improve 12% over the next five years.
Image Source: Zacks Investment Research
What's Driving CAH’s Performance?
Strength in Pharmaceutical Segment: Investors are upbeat about Cardinal Health’s Medical and Pharmaceutical offerings, which provide the company with a competitive edge in the niche space.
The segment's products and services comprise pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services, which are expected to majorly drive the quarters ahead. For the past few quarters, the segment has been acting as a key catalyst when it comes to driving growth. In the second quarter of fiscal 2024, pharmaceutical revenues amounted to $53.5 billion, up 12% on a year-over-year basis. The performance reflects branded pharmaceutical sales growth from Pharmaceutical Distribution and Specialty Solutions customers.
For fiscal 2024, management anticipates 10-12% revenue growth to represent the strong branded pharmaceutical sales growth witnessed from large customers.
Long-term Supply Agreements: Cardinal Health is also pursuing growth via joint ventures and long-term supply agreements with several firms, which have likely kept the investors interested. The company entered a long-term strategic agreement with Henry Schein, under which the latter purchased Cardinal Health’s medical supplies for physician practices. The collaboration is expected to drive core sales and prove accretive to Cardinal Health’s earnings in the long term.
The signing of a 15-year agreement with Bayer Healthcare for the contract manufacturing of Xofigo is significantlypositive. In our opinion, this will help the company leverage its expertise in the nuclear pharmacy industry to expand access to a therapeutic agent and increase the use of radiopharmaceuticals in the United States and Canada.
Strong Q3 Results: Cardinal Health’s impressive third-quarter fiscal 2024 results buoy optimism. The company’s robust top-line results and solid performance in the Pharmaceutical segment were encouraging. Per management, the segmental performance was driven by brand and specialty pharmaceutical sales growth from existing customers.
In the third quarter of fiscal 2024, gross profit increased 9.1% year over year, driven by segmental growth.
Notable Developments
In January 2024, the company announced that it has entered into a definitive agreement to acquire Specialty Networks, a technology-enabled multi-specialty group purchasing and practice enhancement organization for $1.2 billion in cash. Specialty Networks creates clinical and economic value for independent specialty providers and partners across multiple specialty GPOs.
What's Weighing on the Stock?
Cardinal Health faces the risk of losing considerable business in case of loss of a major customer, which, in turn, will severely impair its revenues in the future. In this regard, post the establishment of a generic sourcing joint venture with CVS Caremark in 2014, Cardinal Health largely depends on the former for more than 20% of its revenues. Collectively, five of Cardinal Health’s main customers, including CVS, accounted for as much as 40% of its revenues.
Cardinal Health’s Monoject syringes got unfavorable FDA recommendations in March, following reports of delay in therapy as well as inaccurate therapy (overdose or underdose) when used with a syringe pump or a patient-controlled analgesia pump. Any further regulatory setback may raise concerns.
Estimate Trend
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $225.8 billion, indicating a 10.2% improvement from the previous year’s level.
The Zacks Consensus Estimate for adjusted earnings per share (EPS) is pinned at $7.35, indicating a 26.9% increase from the year-ago reported numbers. The consensus estimate for adjusted EPS has improved 1% in the past 30 days.
Key Picks
Some better-ranked stocks in the broader medical space that have announced quarterly results are DaVita (DVA - Free Report) , Stryker Corporation (SYK - Free Report) and Universal Health Services (UHS - Free Report) .
DaVita, sporting a Zacks Rank of 1 (Strong Buy) at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita’s shares have gained 44% compared with the industry’s 20.4% growth in the past year.
Stryker, carrying a Zacks Rank of 2 (Buy) at present, has an estimated long-term growth rate of 10.6%. SYK’s earnings surpassed estimates in each of the trailing four quarters, with the average being 4.9%.
Stryker has gained 13.2% against the industry’s 3.1% decline in the past year.
Universal Health Services has an Earnings ESP of +2.91% and a Zacks Rank of 2, at present. UHS has an estimated earnings growth rate of 30.5% for 2024.
UHS’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.12%.