Cardinal Health, Inc. (CAH)

From CFRA
-- In August, we lifted our view on shares of CAH to
Buy from Hold as we think CAH is attractive at
current valuations. We see CAH set for better
growth in its core business in FY 22 and in the
long-run we think it will likely benefit from
steadily growing product volumes as baby
boomers drive higher health care utilization. We
view the divestiture of the Cordis business,
CAH’s global manufacturer of cardiology devices
for $1B as positive. The transaction is slated to
close in H1 FY 22. Since its 2015 acquisition,
Cordis was a significant drag for the Medical
segment, in our view, due to operational
problems, inventory write-downs, and mounting
litigation costs.
---Consolidation of health insurers, providers, and
pharmacy benefit managers has been an
ongoing trend since 2018. This trend could
pressure CAH's operating margins, in our view,
as larger customers are able to negotiate lower
distribution fees.
--- Our price target is $56, 8.9x our FY 23 EPS
estimate, lower than CAH’s historical forward P/
E average of 120x. Risks include a longer-thananticipated rebound in elective procedures due
to new rising Covid-19 infections, severe
generic price deflation and contract renewals on
less favorable terms