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We downgrade our rating for Cardinal Health ( CAH - Analyst Report ) to Neutral. Earnings per share from continuing operations of 81 cents exceeded the Zacks Consensus Estimate of 76 cents for the second quarter of fiscal 2012. Earnings from continuing operations (as reported) increased about 23% year over year to $264.4 million (or 76 cents a share).
Sales for the second quarter rose 7% year over year to $27.1 billion, exceeding the Zacks Consensus Estimate of $26.9 billion. Sales were boosted by growth across the board.
Looking ahead, Cardinal upwardly revised its adjusted earnings per share from continuing operations guidance to a band between $3.10 and $3.20 (from $3.04 and $3.19 earlier) for fiscal 2012.
Cardinal Health is ranked in the Fortune 500. With over $100 billion in annual sales, Cardinal Health remains one of the largest distributors of pharmaceuticals and medical supplies in the U.S., with a diversified product portfolio, which may partly insulate it from the current economic uncertainty.
The company stands to gain from the gradual shift in mix from the bulk to the higher-margin non-bulk sector of the Pharmaceutical segment. It is also riding the generic wave. Overall, Cardinal is benefiting from a spate of tuck-in acquisitions and capital deployment strategies.
However, the company faces tough competition across all its business segments, which may continue to pressure pricing and margins. Its major competitors in the pharmaceutical supply chain segment include McKesson Corp. ( MCK - Analyst Report ) and AmerisourceBergen Corp. ( ABC - Analyst Report ) . We are currently Neutral on the stock, backed by a short-term Zacks #3 Rank (Hold).
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