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Why Is Cardinal (CAH) Up 3.5% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Cardinal Health (CAH). Shares have added about 3.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cardinal due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cardinal Health Q4 Earnings and Revenues Top Estimates

Cardinal Health, Inc. delivered fourth-quarter fiscal 2019 adjusted earnings of $1.11 per share, which surpassed the Zacks Consensus Estimate of 93 cents by 19.4%. Further, the reported figure improved 9.9% year over year.

Revenues increased 5.7% on a year-over-year basis to $37.35 billion and beat the Zacks Consensus Estimate by 1.2%.

FY19 at a Glance

For fiscal 2019, the company reported adjusted earnings of $5.28 per share, up 5.6% from the year-ago period. The metric exceeded the Zacks Consensus Estimate of $5.10 per share.

Revenues totaled $145.53 billion, up 6.4% year over year, which beat the Zacks Consensus Estimate of $144.72 billion.

Segmental Analysis

Pharmaceutical Segment

In the fiscal fourth quarter, pharmaceutical revenues improved 6.2% to $33.40 billion on a year-over-year basis. The upside can be attributed to sales growth from Pharmaceutical Distribution and Specialty Solutions customers.

Pharmaceutical witnessed an improvement of 7.5% in profits to $447 million owing to a positive impact from Specialty Solutions, and higher contribution from brand sales and mix. However, the company’s generic performance partially offset the upside.

Medical Segment

In the quarter under review, revenues at this segment rose 1.5% to $3.96 billion on account of growth from existing customers. However, divestiture of the naviHealth business partially offset the upside.

Medical segment profit declined 14.9% to $97 million owing to the performance of Cardinal Health Brand products. The benefits from cost savings initiatives mitigated the downside.

Margin Analysis

Gross profit fell 3.5% year over year to $1.67 billion.

As a percentage of revenues, gross margin in the quarter was 4.5%, down 40 bps on a year-over-year basis.

Distribution, selling, general and administrative expenses totaled $1.17 billion, down 8% year over year. Adjusted operating income totaled $507 million, up 9% from the year-ago quarter.

The company reported operating income of $307 million in the quarter under review, against the year-ago quarter’s loss of $1.08 billion.

Financial Update

As of Jun 30, 2019, cash and cash equivalents amounted to $2.53 billion, surging 43.6% from the 2018-end level.

Cash from operating activities totaled $506 million, down 8.7% from the year-ago quarter.

2020 Guidance

The company estimates adjusted earnings per share to range between $4.85 and $5.10. The mid-point of the latest guidance range of $4.98 lags the Zacks Consensus Estimate of $5.16.

It is important to note here that abovementioned guidance includes an expected incremental $130 million in cost savings associated with actions intended to optimize and simplify the company's operating model and cost structure.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.24% due to these changes.

VGM Scores

Currently, Cardinal has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cardinal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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