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Cardinal Health (CAH) Hits New 52-week High: What's Driving It?

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Cardinal Health, Inc. (CAH - Free Report) reached a new 52-week high of $60.15 on Mar 24, before closing the session marginally lower at $59.11. The stock has rallied 8.9% since its fiscal 2021 second-quarter earnings announcement on Feb 5.

The company is witnessing an uptrend in its stock price, prompted by robust performance in both Pharmaceutical and Medical segments during the fiscal second quarter. Cardinal Health's raised fiscal 2021 outlook is a positive. Gross profit rose 3.6% year over year to $1.78 billion. The company reported an operating income of $461 million in the quarter under review, up 38% from the prior-year quarter. As a percentage of revenues, operating margin in the reported quarter was 1.1%, up 30 basis points (bps) from the year-ago quarter.

Key Growth Catalysts

Impressive Q2 Performance: During the fiscal second quarter, the company inked a deal with the Centers for Disease Control and Prevention (CDC) to become a network administrator in Phase 2 of the Federal Pharmacy Partnership Strategy for COVID-19. Further, the Ohio Department of Health chose Cardinal Health to strengthen its efforts to distribute COVID-19 vaccines by arranging transportation within the state of Ohio. In the fiscal second quarter, pharmaceutical revenues rose 4.3% to $37.24 billion on a year-over-year basis. The upside can be attributed to growth in sales from Pharmaceutical Distribution and Specialty Solutions customers. In the quarter under review, revenues in this segment increased 7.1% to $4.31 billion, attributable to higher sales from personal protective equipment (PPE) and an increase in volumes in its lab business.

Collaborations: In March 2021, the company inked a deal to divest its Cordis business to Hellman & Friedman (H&F) for around $1 billion. Notably, the transaction is anticipated to be completed in the first half of Cardinal Health’s fiscal 2022, subject to  regulatory clearances and mandatory closing conditions. In February 2021, Cardinal Health WaveMark Supply Management & Workflow Solutions inked a collaboration with HIMSS Analytics as a Certified Organization of the Clinically Integrated Supply Outcomes Model (CISOM). The aim of this was to help health systems optimize and monitor progress as they innovate their clinical and operational supply chains.

Product Launch: In January 2021, OptiFreight Logistics, a Cardinal Health company, unveiled TotalVue Analytics — a tool for healthcare supply chain leaders to leverage predictive technology and data to identify logistics savings and benchmarking. Utilizing the scale of Cardinal Health, TotalVue Analytics provides health systems with visibility into shipping trends to identify opportunities to cut down freight costs.

 

 

Downsides

Probabilities of Loss of a Major Customer: Cardinal Health faces the risk of losing considerable business in case of loss of a major customer, which in turn will severely impair its revenues in the future.

Cutthroat Competition in MedTech Space: Cardinal Health faces tough competition in each of its business segments. For example, its pharmaceutical supply chain business faces competition from McKesson and AmerisourceBergen as well as several smaller medical-surgical distributors, such as Henry Schein and Owens & Minor.

Price Performance

In the past six months, the stock has gained 26.7% compared with 18.8% growth for the industry.

Zacks Rank and Key Picks

Currently, Cardinal Health has a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are Align Technology (ALGN - Free Report) , Abbott Laboratories (ABT - Free Report) and Hologic (HOLX - Free Report) . While Align Technology currently sports a Zacks Rank #1 (Strong Buy), the other two presently carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has a projected long-term earnings growth rate of 19%.

Abbott has a projected long-term earnings growth rate of 14.1%.

Hologic has an estimated long-term earnings growth rate of 15.4%.

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