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Here's Why You Should Retain Cardinal Health (CAH) Stock Now

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Zacks Equity Research
·4 min read
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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 6.8% compared with the industry’s growth of 16% in the past month. Further, the S&P 500 Index has rallied 16.3% in the same time frame.

The company — with a market capitalization of $15.59 billion — is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It anticipates earnings to improve 5.4% over the next five years. Moreover, Cardinal Health beat estimates in each of the trailing four quarters, the average surprise being 21.4%.

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 first-quarter 2021 earnings call, Cardinal Health still continues to incur substantially higher procurement costs for several personal protective equipment (PPE) product categories due to global supply challenges amid the pandemic. To help counter these cost increases, the company implemented price increases on select PPE products with the goal of maintaining neutral margin dollars.

Key Catalysts

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.

In first-quarter fiscal 2021, pharmaceutical revenues rose 5% to $35.11 billion on a year-over-year basis. The upside can be attributed to growth in sales from Pharmaceutical Distribution and Specialty Solutions customers. Despite decline in volumes related to COVID-19, the segment witnessed an increase of 1% in profits to $402 million, driven by an increase in contribution from brand sales mix.

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 $160.72 billion, indicating an improvement of 5.1% from the previous year’s reported number. The same for adjusted earnings per share stands at $5.83, suggesting growth of 6.9% from the year-ago reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space are Merit Medical Systems, Inc. MMSI, Patterson Companies, Inc. PDCO and IDEXX Laboratories, Inc. IDXX, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merit Medical has a projected long-term earnings growth rate of 12.6%.

Patterson Companies has an estimated long-term earnings growth rate of 9.6%.

IDEXX Laboratories has a projected long-term earnings growth rate of 15.8%.

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Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
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Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report
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