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What's in Store for Cardinal Health (CAH) in Q2 Earnings?

Zacks Equity Research

Cardinal Health CAH is set to report second-quarter fiscal 2018 results on Feb 8, before the closing bell. The company’s innovative product line, strategic buyouts, joint ventures and supply agreements indicate significant long-term opportunities.

In the last quarter, Cardinal Health’s adjusted earnings declined 12.1% on a year-over-year basis to $1.09 per share. However, the figure beat the Zacks Consensus Estimate of $1.01. Revenues inched up 1.9% year over year basis to almost $32.64 billion, missing the Zacks Consensus Estimate of $33.43 billion. The stock delivered a positive earnings surprise in each of the trailing four quarters, the average beat being 6.6%.

Of the recent developments, Cardinal Health closed the acquisition of Medtronic's (MDT) Patient Recovery business for $6.1 billion in cash. Further, the company launched ConnectSource, a new cloud-based patient engagement platform. These are likely to drive the top line in the second quarter.

Cardinal Health, Inc. Price and Consensus


Cardinal Health, Inc. Price and Consensus | Cardinal Health, Inc. Quote

Let’s take a look at how things are shaping up prior to the second-quarter earnings announcement.

Cushioned Against Macroeconomic Sluggishness: Large-cap, diversified healthcare distributors such as Cardinal Health are cushioned against macroeconomic uncertainty and political riddles. Cardinal Health is one of the largest distributors of pharmaceuticals and medical supplies. It has a diverse product portfolio, which is a hedge against the risk of probable sales shortfall in a macroeconomic slow down. In fact, the company has a long-term expected earnings growth rate of 8.5%

View Tepid: The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.14, down 14.9% year over year basis. The company faces the risk of losing considerable business in case of loss of a major customer, which will severely impair the bottom line. In fact, Cardinal Health announced loss of a large mail-order customer, Prime Therapeutics. This dented the company’s Specialty and Pharmaceutical Distribution revenues in the last quarter.

Meanwhile, the Zacks Consensus Estimate for second-quarter revenues is $34.7 billion, up 4.7% year over year.

Pricing Pressure in Generics Portfolio: Cardinal Health has been grappling with pricing deflation in the generics segment. Per management, reimbursement pressure is likely to affect the company’s customer base and also impede generic launches in the near term. Rising expenses, specifically in the Pharma segment, might dent profits in the second quarter.

Cutthroat Competition in Niche Space: Cardinal Health witnesses tough competition in each business segments. For instance, the pharmaceutical supply chain business faces competition from several smaller medical-surgical distributors. Intense competition in the global markets is likely to mar Cardinal Health’s top line in the second quarter.

Earnings Whispers

Our proven model does not conclusively show that Cardinal Health is likely to beat earnings this quarter. This is because a stock needs to have a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. This is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Cardinal Health is -1.93%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cardinal Health carries a Zacks Rank #2.

Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Amphastar Pharmaceuticals AMPH has an Earnings ESP of +194.12% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Anthera Pharmaceuticals ANTH has an Earnings ESP of +20.47% and a Zacks Rank #2.

Fibrocell Science FCSC has an Earnings ESP of +2.22% and a Zacks Rank #2.

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