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Here's Why You Should Retain Cardinal Health Stock for Now

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Cardinal Health Inc. (CAH - Free Report) is well poised for growth on the back of diversified product portfolio, acquisition-driven strategy and the robust pharmaceutical segment. However, intense competition remains a concern.

The stock has gained 13.8%, against the industry’s decline of 3.6% in a year’s time. Further, the S&P 500 Index rallied 18.3% in the same time frame.

The company — with a market capitalization of $14.58 billion — is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It anticipates earnings to improve 5% over the next five years. Moreover, Cardinal Health beat estimates in each of the trailing four quarters, the average surprise being 17.4%.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).


What’s Deterring the Stock?

Cardinal Health faces tough competition in each of its business segments. Consequently, stiff competition remains a concern.

Key Catalysts

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 performance in the days ahead.

For fiscal 2021, the company expects Pharmaceutical segment to witness mid-single digit percentage growth in revenues and low-single digit percentage growth with respect to profit. Higher contribution from key growth areas — Specialty and Connected Care — and sustained market dynamics within its generics program are anticipated to bolster the segment.  

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. The company benefited from this and exceeded its enterprise cost savings target for fiscal 2020.

Which Way are Estimates Headed?

For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $159.42 billion, indicating an improvement of 4.3% from the prior-year quarter. The same for adjusted earnings per share stands at $5.42, suggesting a decline of 0.6% from the year-ago reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space include West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and PerkinElmer, Inc. . While PerkinElmer sports a Zacks Rank of 1 (Strong Buy), both Thermo Fisher and West Pharmaceuticals carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PerkinElmer has a projected long-term earnings growth rate of 17.4%.

West Pharmaceutical has a projected long-term earnings growth rate of 17.4%.

Thermo Fisher has an estimated long-term earnings growth rate of 15%.

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