Reasons to Add Cardinal Health (CAH) to Your Portfolio Now
Cardinal Health Inc. CAH is well-poised for growth, given its acquisition-driven strategy, a diversified product portfolio and a robust pharmaceutical segment. However, inflationary pressure remains a concern.
Shares of this Zacks Rank #2 (Buy) company have risen 39.2% year to date compared with the industry's 7.7% growth. The S&P 500 Index has increased 20.7% in the same time frame.
CAH, with a market capitalization of $22.35 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 7.3% compared with the industry's 4.7%. It anticipates earnings to improve 14.3% over the next five years.
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What's Driving CAH’s Performance?
Diversified Product Portfolio: Investors are upbeat about Cardinal Health’s Medical and Pharmaceutical offerings, which provide the company with a competitive edge in the niche space. This month, the company announced the U.S. launch of its SmartGown EDGE Breathable Surgical Gown with ASSIST Instrument Pockets to provide surgical teams with safe and convenient instrument access in the operating room.
In September, Cardinal Health announced the U.S. launch of its Kangaroo OMNI Enteral Feeding Pump, designed to help provide enteral feeding patients with more options to meet their personalized needs throughout their enteral feeding journey.
Distribution Centers: Investors are optimistic about Cardinal Health’s opening of a few distribution centers in strategic areas over the past few months. This month, the company announced its plans to build a new distribution center in Greenville, SC, to support its at-Home Solutions business, a home healthcare medical supplies provider serving people with chronic and serious health conditions in the United States.
In May, Cardinal Health Canada announced its plans to open a new distribution center in the Greater Toronto Area, thus expanding its distribution footprint to better meet the medical and surgical product demands of the Canadian healthcare system.
Strong Q1 Results: Cardinal Health’s impressive first-quarter fiscal 2024 results buoy optimism. The company’s robust top-line results and solid performance in the Pharmaceutical segment were encouraging. Per management, the segmental performance was driven by brand and specialty pharmaceutical sales growth from existing customers.
Notable Developments
In November, CAH announced the launch of SmartGown EDGE Breathable Surgical Gown with ASSIST Instrument Pockets in the United States. The new surgical gown will provide surgical teams with safe and convenient instrument access in the operating room.
In September, the company announced the launch of its next-generation Kangaroo OMNI enteral feeding pump in the country. The new pump’s design will provide more options to patients to meet their personalized needs for enteral feeding.
Per CAH, the Kangaroo OMNI is the first and only attitude-independent enteral feeding system launched so far in the United States. The device is designed for portability with an option for delivery of a wider variety of enteral formulas. The new pump has a familiar user interface to the earlier Kangaroo pumps. This should help facilitate a smooth transition for patients as well as caregivers across hospital and home-based care.
What's Weighing on the Stock?
The company continues to face high costs to support sales as well as rising operating expenses. Although there is an improving trend for costs and expenses, these are likely to hurt margins in fiscal 2024, especially in the first half. Meanwhile, rising interest rates are a key area of concern amid high Capex plans.
In the first quarter of fiscal 2023, gross margin remained flat year over year. This implies that rising costs are being offset by cost-saving initiatives.
Cardinal Health’s Monoject syringes get unfavorable FDA recommendations following reports of delay in therapy as well as inaccurate therapy (overdose or underdose) when used with a syringe pump or a patient-controlled analgesia pump. Any further regulatory setback may raise concerns.
Estimates Trend
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $226.17 billion, indicating a 10.3% improvement from the previous year’s level.
The same for adjusted EPS is pinned at $6.89, indicating a 19% increase from the year-ago reported number. The consensus estimate for adjusted EPS has improved 1.2% in the past 60 days.
Cardinal Health, Inc. Price
Cardinal Health, Inc. price | Cardinal Health, Inc. Quote
Other Stocks to Consider
Some other top-ranked stocks in the broader medical space are DexCom DXCM, HealthEquity, Inc. HQY and Biodesix BDSX.
DexCom, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 33.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DXCM’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 36.43%. The company’s shares have risen 4.2% year to date compared with the industry’s 3.8% growth.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 26.8%. HQY’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 16.5%.
The company’s shares have rallied 15% year to date against the industry’s 9.9% decline.
Biodesix, carrying a Zacks Rank #2 at present, has an estimated growth rate of 32.3% for 2024. BDSX’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 9.76%.
The stock has fallen 30.9% year to date compared with the industry’s 9.9% decline.
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Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
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