Cardinal Health Inc. CAH is well poised for growth backed by diversified product portfolio, acquisition-driven strategy and the robust pharmaceutical segment.
The stock has lost 9.6%, narrower than the industry’s decline of 23% in a year’s time. Further, the S&P 500 Index has declined 8.7% in the same time frame.
The company — with a market capitalization of $17.39 billion — is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It anticipates earnings to improve 4.3% over the next five years. Moreover, Cardinal Health beat EPS estimates in the trailing four quarters, with the average surprise being 18.2%.
The stock has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), are better picks than most.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #1.
Factors to Bolster Cardinal Health
Cardinal Health’s Medical and Pharmaceutical offerings provide the company 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 strength of the segment is anticipated to drive the company in the days ahead.
In the fiscal second quarter of 2020, pharmaceutical revenues improved 5.9% on a year-over-year basis to $35.71 billion. The upside can be attributed to sales growth from Pharmaceutical Distribution and Specialty Solutions customers.
In fourth-quarter fiscal 2019 earnings call, Cardinal Health announced that it anticipates incremental cost savings of $130 million associated with actions intended to optimize, and simplify operating model and cost structure.
Moreover, on fiscal second-quarter 2020 earnings call, the company stated that it anticipates meeting or exceeding its $130-million commitment for the year, primarily on the back of selling, general and administrative activities. Benefits from these activities and additional actions will likely drive the company’s margins in the days ahead.
Which Way are Estimates Headed?
For fiscal 2020, the Zacks Consensus Estimate for revenues is pegged at $152.92 billion, indicating an improvement of 5.1% from the year-ago period. The same for adjusted earnings per share stands at $5.34, suggesting growth of 1.1% from the year-ago reported figure.
Other Stocks to Consider
Other top-ranked stocks from the broader medical space include Accuray Incorporated ARAY, Stryker Corporation SYK and The Cooper Companies, Inc. COO, each currently carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Accuray has an expected earnings growth rate of 200% for third-quarter fiscal 2020.
Stryker has an estimated long-term earnings growth rate of 9.8%.
Cooper Companies has a projected long-term earnings growth rate of 10.8%.
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