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Cardinal (CAH) Up 3.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Cardinal Health (CAH). Shares have added about 3.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cardinal due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cardinal Health Q1 Earnings & Revenues Beat Estimates

Cardinal Health, Inc. reported first-quarter fiscal 2020 adjusted earnings of $1.27 per share, which surpassed the Zacks Consensus Estimate of $1.09 by 16.5%. However, the reported figure declined 1.6% year over year.

Revenues increased 6% on a year-over-year basis to $37.34 billion and beat the Zacks Consensus Estimate by 0.9%.

Segmental Analysis

Pharmaceutical Segment

In the fiscal first quarter, pharmaceutical revenues improved 6.4% to $33.43 billion on a year-over-year basis. The upside can be attributed to sales growth from Pharmaceutical Distribution and Specialty Solutions customers.

Pharmaceutical witnessed a decline of 2.7% in profits to $398 million thanks to an adverse impact of Pharmaceutical Distribution customer contract renewals. However, benefits from cost savings initiatives and performance of Specialty Solutions partially offset the downside.

Medical Segment

In the quarter under review, revenues at this segment rose 3.1% to $3.92 billion on account of organic growth across the segment, led by products and distribution, and Cardinal Health at Home. However, divestiture of the naviHealth business partially offset the upside.

Medical segment profit improved 25.9% to $170 million owing to benefits from cost savings initiatives, growth in products and distribution, services, and Cardinal Health at Home. The divestiture of the naviHealth business partially offset the upside.

Margin Analysis

Gross profit inched up 0.7% year over year to $1.68 billion.

As a percentage of revenues, gross margin in the reported quarter was 4.5%, down 20 bps on a year-over-year basis.

Distribution, selling, general and administrative expenses totaled $1.17 billion, down 4.2% year over year. Adjusted operating income totaled $577 million, up 6.5% from the year-ago quarter.

The company reported operating loss of $5.26 billion in the quarter under review, against the year-ago quarter’s income of $816 million.

Financial Update

As of Sep 30, 2019, cash and cash equivalents amounted to $1.21 billion, plunging 52.1% from sequentially.

Cash from operating activities totaled ($653) million, against that of $365 million in the year-ago quarter.

2020 Guidance Reaffirmed

The company has reaffirmed fiscal 2020 adjusted earnings per share, which will range between $4.85 and $5.10. The mid-point of the latest guidance range of $4.98 is lower than the Zacks Consensus Estimate of $4.99.

Per the company’s previously issued fiscal 2020 guidance, the company stated that the abovementioned guidance includes an expected incremental $130 million in cost savings associated with actions intended to optimize and simplify its operating model and cost structure.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Cardinal has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cardinal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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