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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, segmental weakness remains a concern.
The stock has gained 9.9% compared with the industry’s growth of 7.1% in the past three months. Further, the S&P 500 Index has rallied 9.1% in the same time frame.
The company — with a market capitalization of $16.43 billion — is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It anticipates earnings to improve 7.7% over the next five years. Moreover, Cardinal Health beat estimates in each of the trailing four quarters, the average surprise being 15.9%.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Weighing on the Stock?
In the fiscal third-quarter 2021, Pharmaceutical segment witnessed a decline of 4.3% in profits to $511 million due to decrease in volume on account of the COVID-19 impact in the generics program. However, increase in contribution from brand sales mix partially offset the downside.
Medical segment profit fell 2.2% to $174 million, due to benefits from cost savings that include global manufacturing efficiencies.
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 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.
During the fiscal third quarter of 2021, the company received an award of $57.8 million contract (which included options that if exercised by the U.S. Department of Health and Human Services – HHS – could reach $91.6 million) for the storage and distribution of 80,000 pallets of personal protective equipment (PPE) to lend support to the Strategic National Stockpile (SNS).
Per the fiscal second-quarter 2021 earnings call, the company is boosting its core Medical and Pharmaceutical Distribution and product capabilities as it continues to adapt the resilient business models for the future. Further, Cardinal Health continues to show solid progress in both its segments and supply chain work streams, and generating near and long-term efficiencies.
Which Way Are Estimates Headed?
For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $160.42 billion, indicating an improvement of 4.9% from the previous year’s reported number. The same for adjusted earnings per share stands at $5.98, suggesting growth of 9.7% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are HCA Healthcare, Inc. HCA, DaVita Inc. DVA and Amedisys, Inc. AMED, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
HCA Healthcare’s long-term earnings growth rate is expected at 12.3%.
DaVita’s long-term earnings growth rate is estimated at 14.4%.
Amedisys’ long-term earnings growth rate is estimated at 12%.
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