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Here's Why You Should Hold on to Cardinal Health (CAH) Stock

Zacks Equity Research

Cardinal Health Inc. CAH is well poised for growth backed by diversified product portfolio, acquisition-driven strategy and robust pharmaceutical segment. However, integration risks remain a concern.

The stock currently carries a Zacks Rank #3 (Hold).

Price Performance

Shares of Cardinal Health have lost 4%, against the industry’s growth of 10.7% on a year-to-date basis. Further, the S&P 500 Index rallied 12.2% in the same timeframe.

What’s Weighing on the Stock?

Given the acquisition-driven strategy followed by the company, integration risks tend to follow.

Moreover, intense competition in each of the business segments poses a concern for Cardinal Health.

Factors to Bolster Cardinal Health

Cardinal Health’s Medical and Pharmaceutical offerings provide the company a competitive edge in the niche space. It offers industry expertise and an expanding portfolio of safe products.

The company follows an acquisition-driven strategy and continues to remain committed toward investment in key growth businesses to gain market traction and bolster profits.

The company’s Pharmaceutical segment boasts of being the second largest pharmaceutical distributor in the United States. The segment’s products and services consist of pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services. These in turn are anticipated to drive the company’s performance in the days ahead.

In terms of costs, Cardinal Health announced in fourth-quarter fiscal 2019 earnings call that it anticipates incremental cost savings of $130 million associated with actions intended to optimize and simplify the company's operating model and cost structure.

In fact, the company has already delivered $130 million in fiscal 2019. The company remains confident when it comes to generating more than $500 million in savings in comparison with its fiscal 2018 baseline in five years or less. This is likely to aid the company’s margins in the quarters ahead.

Which Way Are Estimates Headed?

For fiscal 2020, the Zacks Consensus Estimate for revenues is pegged at $151.96 billion, indicating an improvement of 4.4% from the year-ago period. For adjusted earnings per share, the same stands at $5.02, suggesting a decline of 4.9% from the year-ago reported figure.

Key Picks

Some better-ranked stocks from the broader medical space are Baxter International Inc. BAX, Amedisys, Inc. AMED and CONMED Corporation CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Baxter has a long-term earnings growth rate of 12.8%.

Amedisys has a long-term earnings growth rate of 16.3%.

CONMED has a long-term earnings growth rate 14.9%.

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Baxter International Inc. (BAX) : Free Stock Analysis Report
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