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Can Cardinal Health (CAH) Keep Its Earnings Streak Alive? - Analyst Blog

Zacks Equity Research

We feel that Cardinal Health Inc. CAH can keep its earnings streak alive as the company is expected to beat expectations this earnings season. Cardinal Health is slated to report third-quarter fiscal 2015 results before the opening bell on Apr 30.

In the preceding quarter, this Dublin, OH-based company had delivered an 8.11% positive earnings surprise on the back of strong sales. Notably, the company has surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average earnings beat of 3.67%.

Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Cardinal Health is likely to beat earnings this season as it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.86%. This is a very meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Cardinal Health carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Ranks #1, #2 and #3 have a significantly higher chance of beating earnings. Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into the earnings announcement.

The combination of Cardinal Health’s Zacks Rank #3 (Hold) and ESP of 0.86% makes us confident of an earnings beat this season.  

What's Driving the Better-Than-Expected Earnings?

In our opinion, this healthcare services company is banking on strategic buyouts, joint ventures and supply agreements to drive growth in the coming quarters.

In Mar 2015, Cardinal Health signed a deal to acquire Cordis – a unit of Johnson & Johnson JNJ -- which, in our view, will significantly expand the company’s global footprint in the long run. This should boost the company’s top-line performance as well.

Moreover, Cardinal Health’s long-term strategic agreement with Henry Schein Inc. HSIC, signed in Nov 2014, as well as the contract manufacturing agreement with Bayer Healthcare, signed in the second quarter of fiscal 2015, presents significant growth opportunities.

Furthermore, we believe that Cardinal Health’s innovative product line will continue to drive top-line growth. New and existing customers as well as continued growth in China are added positives. Attractive returns to shareholders through consistent stock repurchases should also boost earnings.

Other Stocks to Consider

Cardinal Health is not the only company looking up this earnings season. We also see likely earnings beats coming from these two industry peers:

Mirati Therapeutics MRTX with an Earnings ESP of +4.23% and a Zacks Rank #2 (Buy).

Sirona Dental Systems SIRO with an Earnings ESP of +7.90% and a Zacks Rank #2.


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