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Cardinal Health, Inc. (CAH - Analyst Report) carried its strong momentum into the first quarter of its fiscal 2012 and delivered its 9th consecutive positive earnings surprise. Analysts raised their estimates after the strong quarter for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).

Analysts expect this momentum to continue for the next couple of years too. Based on current consensus estimates, analysts expect 19% EPS growth in 2012 and 12% growth in 2013.

The company also pays a dividend that yields a solid 2.1%. Valuation is attractive too with shares sporting a PEG ratio of 0.9.

Healthcare Solutions Company

Cardinal Health is a healthcare solutions company that provides health care products and services. It reports its results in two segments: Pharmaceutical (91% of revenue) and Medical (9%).

The Pharmaceutical segment consolidates pharmaceuticals from hundreds of manufacturers into site-specific deliveries to pharmacies and hospitals.

The Medical segment delivers medical-surgical products to ambulatory care centers, physician offices, clinical laboratories and hospitals. It also manufactures replenishable products such as gloves, gowns, surgical drapes, scrubs and fluid management products.

The company is headquartered in Dublin, Ohio and has a market cap of $14.0 billion.

First Quarter Results

Cardinal Health reported better than expected results for the first quarter of its fiscal 2012. Earnings per share came in at 73 cents, beating the Zacks Consensus Estimate by a penny. It was an 11% increase over the same quarter in 2011.

Revenue jumped 10% year-over-year to $26.792 billion, ahead of the Zacks Consensus Estimate of $26.267 billion. The Pharmaceutical segment saw top-line growth of 10%, driven in large part by acquisitions. The Medical segment also experienced 10% revenue growth, but this was due mostly to organic growth.

Meanwhile, operating income increased 16% over the same period.

Outlook

Following solid Q1 results, management reaffirmed its fiscal 2012 EPS guidance of $3.04 to $3.19. The Zacks Consensus Estimate for both 2012 and 2013 increased, however, sending the stock to a Zacks #2 Rank (Buy).

Cardinal Health is expected to continue seeing solid top-line growth both organically and from recent acquisitions. Analysts expect this, as well as margin expansion, to drive strong EPS growth over the next couple of years.

The Zacks Consensus Estimate for 2012 is $3.18, within guidance, and representing 19% growth over 2011 EPS. The 2012 consensus estimate is currently $3.57, corresponding with 12% EPS growth.

Returning Value to Shareholders

Cardinal Health has been generating strong free cash flows, which it has used to return value to shareholders through stock buybacks and dividend hikes.

The company spent approximately $300 million buying back shares of its stock in the first quarter. And since 2000, it has raised its dividend at a compound annual growth rate of 24%.

It currently yields a solid 2.1%.

Reasonable Valuation

Shares of CAH trade at just 11.9x 12-month forward earnings, a discount to its 10-year median of 15.3x. Based on a consensus long-term EPS growth rate of 12.8%, its PEG ratio is an attractive 0.9.

The Bottom Line

With rising earnings estimates, strong growth projections, a solid 2.1% dividend yield and attractive valuation, Cardinal Health offers investors attractive total return potential.

Read the July 12 article here.

This Week's Growth & Income Zacks Rank Buy Stocks:

Insperity, Inc. (NSP) recently delivered its 7th consecutive positive earnings surprise on the back of 14% revenue growth and 32% EPS growth. Analysts revised their estimates higher for both 2011 and 2012 off the strong quarter, sending the stock to a Zacks #1 Rank (Strong Buy). The company also pays a dividend that yields 2.4%, and valuation is attractive with shares sporting a PEG ratio of just 0.5. Read the full article.

MTS Systems Corporation (MTSC) recently delivered a big 42% positive earnings surprise and also posted a record backlog of orders. Consensus estimates have been soaring for 2012, and the stock is a Zacks #1 Rank (Strong Buy). The company also pays a dividend that yields 2.5%. Valuation is attractive too, with shares trading at just 11x forward earnings. Read the full article.

Cracker Barrel Old Country Store, Inc. (CBRL) recently posted better than expected results for the first quarter of its fiscal 2012, prompting analysts to raise their estimates for the remainder of 2012. It is a Zacks #2 Rank (Buy). The company also pays a dividend that yields 2.0%. Valuation is attractive too with shares trading at just 11x forward earnings, a discount to the industry average. Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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