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Cardinal Health Inc. CAH is well-poised for growth on the back of a diversified product portfolio, acquisition-driven strategy and robust pharmaceutical segment. However, higher procurement costs remain a concern.
The stock has gained 13.6% compared with the industry’s growth of 6.3% on a year-to-date basis. Further, the S&P 500 Index has rallied 10.6% in the same time frame.
The company — with a market capitalization of $17.64 billion — is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It anticipates earnings to improve 7.6% over the next five years. Moreover, Cardinal Health beat estimates in each of the trailing four quarters, the average surprise being 20%.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Weighing on the Stock?
Per the fiscal second-quarter 2021 earnings call, although the company has witnessed improvement in supply in its key product categories, such as gowns and masks, a challenging scenario still persists in case of gloves. The company is using its supply assurance program to manage cost for customers and offer sustained long-range supply in its important product categories.
What’s Driving the Performance?
Cardinal Health’s Medical and Pharmaceutical offerings provide it with a competitive edge in the niche space. It offers industry expertise through an expanding portfolio of safe products.
The company follows an acquisition-driven strategy and remains committed toward investment in key growth businesses to gain market traction and bolster profits.
Cardinal Health’s Pharmaceutical segment is the second-largest pharmaceutical distributor in the United States. The segment’s products and services comprise pharmaceutical distribution, manufacturer and specialty solutions, and nuclear and pharmacy offerings. The segment’s strength is anticipated to drive its performance in the days ahead.
Notably, during second-quarter fiscal 2021, the company collaborated with the Centers for Disease Control and Prevention (CDC) to act as a network administrator, thereby allowing retail independent, small chain and long-term care pharmacy customers to take part in the vaccination effort.
In the fiscal second quarter, pharmaceutical revenues climbed 4.3% to $37.24 billion on a year-over-year basis. The upside can be attributed to growth in sales from Pharmaceutical Distribution and Specialty Solutions customers.
For fiscal 2021, the company expects the Pharmaceutical segment to witness a mid-single-digit percentage improvement in revenues and low-single-digit percentage growth with respect to profit. Higher contributions from key growth areas — Specialty and Connected Care — and sustained market dynamics within its generics program are anticipated to drive the segment.
Which Way Are Estimates Headed?
For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $160.75 billion, indicating an improvement of 5.1% from the previous year’s reported number. The same for adjusted earnings per share stands at $6, suggesting growth of 10.1% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are AmerisourceBergen Corporation ABC, DENTSPLY SIRONA Inc. XRAY and Cantel Medical Corp. CMD, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AmerisourceBergen’s long-term earnings growth rate is expected at 11.4%.
DENTSPLY SIRONA’s long-term earnings growth rate is estimated at 20%.
Cantel Medical’s long-term earnings growth rate is estimated at 19%.
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