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Reasons to Retain Cardinal Health Stock 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 risen 1.5% in the year-to-date period compared with the industry’s 0.1% growth. The S&P 500 Index has gained 11.7% in the same time frame.
CAH, with a market capitalization of $27.49 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 7.5% 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 fourth quarter of fiscal 2024, pharmaceutical revenues amounted to $55.6 billion, up 13% on a year-over-year basis. The performance reflects branded pharmaceutical sales growth from Pharmaceutical Distribution and Specialty Solutions customers.
The company expects revenues from its Pharmaceutical segment to decline 4-6% year over year in fiscal 2025. The anticipated decline reflects a $39 billion revenue headwind due to the OptumRx contract expiration in June 2024. Segmental profit is likely to increase 1-3% from the previous guidance of at least 1%.
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 significantly positive. In our opinion, this should 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 Q4 Results: Cardinal Health’s impressive fourth-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 fourth quarter, gross profit increased 5% year over year, driven by segmental growth.
Notable Developments
In August, Cardinal Health announced the opening of a new distribution center in Greenville, SC. The distribution center is dedicated solely to the company’s at-Home Solutions business, which is also expected to add roughly 200 jobs to the region over time. The opening of the new distribution center is likely to provide a boost to the company’s at-Home Solutions business and generate additional revenues to support the growing market for at-home solutions.
Last month, CAH announced its plan to open a new state-of-the-art distribution center in Walton Hills, OH, to support its medical products and distribution business in the United States. The 249,000-square-foot facility, which will be more than 30% bigger than its predecessor in Solon, OH, is expected to be fully operational by the spring of 2025. This new center will integrate cutting-edge technology and automation, enhancing efficiency, storage capacity and the overall quality of service.
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, can severely impair its future revenues. 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. Meanwhile, the company’s pharmaceutical distribution contracts with OptumRx ended in June 2024. These represented 17% of total revenues in fiscal 2023. The non-renewal of the contracts is likely to adversely impact CAH’s sales in fiscal 2025.
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.
In July, the FDA issued a warning for Cardinal Health’s Presource kit plastic syringe makers, Jiangsu Shenli Medical Production Co. Ltd and Jiangsu China, who have been facing FDA investigation. Recent inspections have unveiled multiple quality system violations, leading to warning letters and import alerts. CAH has recalled the affected products to ensure patient safety and compliance with the FDA regulations.
Estimate Trend
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $215.97 billion, indicating a 4.5% decline from the previous year’s level.
The Zacks Consensus Estimate for adjusted earnings per share (EPS) is pinned at $7.60, indicating a 0.9% increase from the year-ago reported numbers. The consensus estimate for adjusted EPS improved 0.7% over the past 60 days.
Boston Scientific has a long-term estimated growth rate of 12.6%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.
Boston Scientific’s shares have risen 41.4% year to date compared with the industry’s 12.3% growth.
Apyx Medicalhas an estimated growth rate of 20% for 2025. Its earnings missed estimates in each of the trailing four quarters, delivering a negative average surprise of 25.98%.
Apyx Medical’s shares have lost 49.3% year to date against the industry’s 12.3% growth.
Universal Health Services has a long-term estimated growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, the average surprise being 14.58%.
Universal Health Services’ shares have risen 56.1% year to date compared with the industry’s 48% growth.
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Reasons to Retain Cardinal Health Stock 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 risen 1.5% in the year-to-date period compared with the industry’s 0.1% growth. The S&P 500 Index has gained 11.7% in the same time frame.
CAH, with a market capitalization of $27.49 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 7.5% 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 fourth quarter of fiscal 2024, pharmaceutical revenues amounted to $55.6 billion, up 13% on a year-over-year basis. The performance reflects branded pharmaceutical sales growth from Pharmaceutical Distribution and Specialty Solutions customers.
The company expects revenues from its Pharmaceutical segment to decline 4-6% year over year in fiscal 2025. The anticipated decline reflects a $39 billion revenue headwind due to the OptumRx contract expiration in June 2024. Segmental profit is likely to increase 1-3% from the previous guidance of at least 1%.
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 significantly positive. In our opinion, this should 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 Q4 Results: Cardinal Health’s impressive fourth-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 fourth quarter, gross profit increased 5% year over year, driven by segmental growth.
Notable Developments
In August, Cardinal Health announced the opening of a new distribution center in Greenville, SC. The distribution center is dedicated solely to the company’s at-Home Solutions business, which is also expected to add roughly 200 jobs to the region over time. The opening of the new distribution center is likely to provide a boost to the company’s at-Home Solutions business and generate additional revenues to support the growing market for at-home solutions.
Last month, CAH announced its plan to open a new state-of-the-art distribution center in Walton Hills, OH, to support its medical products and distribution business in the United States. The 249,000-square-foot facility, which will be more than 30% bigger than its predecessor in Solon, OH, is expected to be fully operational by the spring of 2025. This new center will integrate cutting-edge technology and automation, enhancing efficiency, storage capacity and the overall quality of service.
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, can severely impair its future revenues. 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. Meanwhile, the company’s pharmaceutical distribution contracts with OptumRx ended in June 2024. These represented 17% of total revenues in fiscal 2023. The non-renewal of the contracts is likely to adversely impact CAH’s sales in fiscal 2025.
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.
In July, the FDA issued a warning for Cardinal Health’s Presource kit plastic syringe makers, Jiangsu Shenli Medical Production Co. Ltd and Jiangsu China, who have been facing FDA investigation. Recent inspections have unveiled multiple quality system violations, leading to warning letters and import alerts. CAH has recalled the affected products to ensure patient safety and compliance with the FDA regulations.
Estimate Trend
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $215.97 billion, indicating a 4.5% decline from the previous year’s level.
The Zacks Consensus Estimate for adjusted earnings per share (EPS) is pinned at $7.60, indicating a 0.9% increase from the year-ago reported numbers. The consensus estimate for adjusted EPS improved 0.7% over the past 60 days.
Cardinal Health, Inc. Price
Cardinal Health, Inc. price | Cardinal Health, Inc. Quote
Stocks to Consider
Some better-ranked stocks in the broader medical space that have announced quarterly results are Boston Scientific (BSX - Free Report) , Apyx Medical (APYX - Free Report) and Universal Health Services (UHS - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Boston Scientific has a long-term estimated growth rate of 12.6%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.
Boston Scientific’s shares have risen 41.4% year to date compared with the industry’s 12.3% growth.
Apyx Medicalhas an estimated growth rate of 20% for 2025. Its earnings missed estimates in each of the trailing four quarters, delivering a negative average surprise of 25.98%.
Apyx Medical’s shares have lost 49.3% year to date against the industry’s 12.3% growth.
Universal Health Services has a long-term estimated growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, the average surprise being 14.58%.
Universal Health Services’ shares have risen 56.1% year to date compared with the industry’s 48% growth.