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Cardinal Health Product Spectrum Broad, Competition Rife

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On Aug 16, we issued an updated research report on Cardinal Health, Inc. (CAH - Free Report) . The company’s broad product spectrum is a positive while competition is cut-throat.

The stock carries a Zacks Rank #3 (Hold).

Price Performance

Shares of Cardinal Health have declined 22.6% against the industry’s rise of 13.9% in a year’s time.

Over the last 30 days, the Zacks Consensus Estimate for the company’s current-quarter earnings per share has dropped 3.5% to $1.10.

Cardinal Health, Inc. Price and Consensus

 

Cardinal Health, Inc. Price and Consensus | Cardinal Health, Inc. Quote

What’s Favoring the Stock?

Cardinal Health’s Medical and Pharmaceutical offerings provide it with a competitive edge. The company’s Bathroom Safety, Mobility, and Exam Room Equipment products are exclusively designed for both patients and care givers. With a variety of products ranging from wheelchairs and crutches to exam room tables and commodes, Cardinal Health offers the right mix of medical equipment.

In the fourth quarter of fiscal 2018, management at Cardinal Health declared that the Specialty and Nuclear businesses saw a strong finish to the year on uniqueness of its product profile. Specialty business delivered robust, double-digit revenue and profit growth, while the nuclear business saw top-line growth and an impressive bottom-line show.

Cardinal Health follows an acquisition-driven strategy. In the recent past, Clayton, Dubilier & Rice (CD&R) and Cardinal Health jointly invested in Brentwood, TN-based naviHealth. Management is optimistic that the alliance will lend the company a competitive edge in the MedTech space.

The company also announced the acquisition of Medtronic's (MDT - Free Report) Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency business for $6.1 billion. Notably, the buyout boosted Cardinal Health’s Medical segment.

Lucrative joint-ventures also buoy optimism. The company entered a long-term strategic agreement with Henry Schein, under which the latter purchased Cardinal Health’s medical supplies for physician practices. The collaboration is expected to drive core sales and prove accretive to Cardinal Health’s earnings in the long term.

Fred's Inc. also signed a multi-year agreement, choosing Cardinal Health as the primary supplier of branded and generic pharmaceutical products.

Unfavorable Factors

Cardinal Health took over Johnson and Johnson’s Cordis unit for $1.94 billion in 2015 to enhance its top line. But, by the end of the third quarter of fiscal 2018, things have not been very favorable for Cardinal Health, especially the Cordis unit.

The Cordis performance not only dented the company’s adjusted operating earnings, but more significantly, it created a higher-than-expected adjusted effective tax rate.

Earlier this year, Cardinal Health announced the divestiture of its Cardinal Health China business to Shanghai Pharmaceuticals Holding Co., Ltd. for $1.2 billion.

For fiscal 2018, the company expects a negative impact of 5 cents per share from the sale of its China distribution business.

Cardinal Health faces tough competition in each of its business segments. For example, its pharmaceutical supply chain business faces competition from McKesson (MCK - Free Report) and AmerisourceBergen as well as several smaller medical-surgical distributors.

Key Pick

A better-ranked stock from broader medical space is Intuitive Surgical (ISRG - Free Report) .

Intuitive Surgical’s expected long-term earnings growth rate is 14.7%. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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