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Reasons to Add Cardinal Health (CAH) in Your Portfolio
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Cardinal Health Inc. (CAH - Free Report) is well-poised for growth, given its acquisition-driven strategy, a diversified product portfolio and a robust pharmaceutical segment. However, inflationary pressure remains a concern.
Shares of this Zacks Rank #2 (Buy) company have risen 19.2% year to date compared with the industry's 12% growth. The S&P 500 Index has increased 14.3% in the same time frame.
CAH, with a market capitalization of $22.35 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 7.3% compared with the industry's 4.7%. It anticipates earnings to improve 14.3% over the next five years.
Image Source: Zacks Investment Research
What's Driving the Performance?
Strong demand across product categories, brand, specialty, consumer health and generics drove the top line for Cardinal Health’s Pharma segment in the last reported quarter. GLP-1 medications were an increasing contributor to the top line in the last couple of quarters that is likely to rise significantly going forward.
The Medical segment’s sales are being primarily driven by robust demand for at-home solutions as well as an improvement in pricing for products. Moreover, cost-optimizing measures have helped the company to improve the segment’s margin during the last reported quarter.
Cardinal Health expects to resolve the impact of inflationary pressures and global supply-chain constraints by the end of fiscal 2024, paving the path for strong margin recovery going forward. The company’s focus on promoting its brand volumewith a 5-point plan is likely to boost its prospects this financial year.
Meanwhile, the return of international freight to pre-pandemic levels implies normalization of freight costs going forward, benefiting CAH’s bottom line in fiscal 2024. Moreover, strong CapEx plans for continued investments in new product development and capacity expansion, and divesture of non-healthcare portfolio buoy optimism.
In the fourth quarter of fiscal 2023, pharmaceutical revenues totaled $49.7 billion, up 15% on a year-over-year basis. The performance highlights branded pharmaceutical sales growth from existing Pharmaceutical Distribution and Specialty Solutions customers. Medical segment sales were flat at $3.8 billion.
On its fourth-quarter fiscal 2023 earnings call, Cardinal Health raised its adjusted earnings per share (EPS) guidance to $6.50-$6.75 from $6.45-$6.70.
Notable Developments
In September, the company announced the launch of its next-generation Kangaroo OMNI enteral feeding pump in the United States. The new pump’s design will provide more options to patients to meet their personalized needs for enteral feeding. Per CAH, the Kangaroo OMNI is the first and only attitude-independent enteral feeding system launched so far in the country. The device is designed for portability with an option for delivery of a wider variety of enteral formulas. The new pump has a familiar user interface to the earlier Kangaroo pumps. This should help facilitate a smooth transition for patients as well as caregivers, across hospital and home-based care.
In August, Cardinal Health launched its next-generation NTrainer System 2.0. The medical device is expected to help reduce the length of stay in neonatal intensive care units for premature and newborn infants.
CAH continues to expand its distribution centers. In June, the company announced its plans to build a new distribution center in Greenville, SC. The facility will support CAH’s supply of healthcare medical supplies at home, especially for those with chronic and serious health conditions.
In May, the company divulged its plans to open a new distribution center in Ontario, Canada. The center will use state-of-the-art robotics technology to drive efficiencies and accuracy, which will help meet the medical and surgical product demands of Canada’s healthcare system. In April, Cardinal Health opened a new distribution center in Ohio to focus on its U.S. Medical Products and Distribution, and at-Home Solutions businesses.
The company continues to face high costs to support sales as well as rising operating expenses. Although there is an improving trend for costs and expenses, these are likely to hurt margins in fiscal 2024, especially in the first half. Meanwhile, rising interest rates are a key area of concern amid high CapEx plans.
In the fourth quarter of fiscal 2023, gross margin remained flat year over year. This implies that rising costs are being offset by cost-saving initiatives.
Estimates Trend
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $225.19 billion, indicating a 9.8% improvement from the previous year’s level.
The same for adjusted EPS is pinned at $6.66, indicating a 15% increase from the year-ago reported number. The consensus estimate for adjusted EPS has improved 1.7% in the past 60 days.
Other Stocks to Consider
Some other top-ranked stocks in the broader medical space are Align Technology (ALGN - Free Report) , HealthEquity, Inc. (HQY - Free Report) and McKesson Corporation (MCK - Free Report) .
ALGN’s earnings surpassed estimates in two of the trailing four quarters and missed twice, delivering an average negative surprise of 1.76%. The company’s shares have risen 35.9% year to date compared with the industry’s 12% growth.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 23.54%. HQY’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 9.1%.
The company’s shares have rallied 20.7% year to date against the industry’s 12.6% decline.
McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.7%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 8.1%.
The stock has rallied 21.2% year to date compared with the industry’s 12% growth.
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Reasons to Add Cardinal Health (CAH) in Your Portfolio
Cardinal Health Inc. (CAH - Free Report) is well-poised for growth, given its acquisition-driven strategy, a diversified product portfolio and a robust pharmaceutical segment. However, inflationary pressure remains a concern.
Shares of this Zacks Rank #2 (Buy) company have risen 19.2% year to date compared with the industry's 12% growth. The S&P 500 Index has increased 14.3% in the same time frame.
CAH, with a market capitalization of $22.35 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 7.3% compared with the industry's 4.7%. It anticipates earnings to improve 14.3% over the next five years.
Image Source: Zacks Investment Research
What's Driving the Performance?
Strong demand across product categories, brand, specialty, consumer health and generics drove the top line for Cardinal Health’s Pharma segment in the last reported quarter. GLP-1 medications were an increasing contributor to the top line in the last couple of quarters that is likely to rise significantly going forward.
The Medical segment’s sales are being primarily driven by robust demand for at-home solutions as well as an improvement in pricing for products. Moreover, cost-optimizing measures have helped the company to improve the segment’s margin during the last reported quarter.
Cardinal Health expects to resolve the impact of inflationary pressures and global supply-chain constraints by the end of fiscal 2024, paving the path for strong margin recovery going forward. The company’s focus on promoting its brand volumewith a 5-point plan is likely to boost its prospects this financial year.
Meanwhile, the return of international freight to pre-pandemic levels implies normalization of freight costs going forward, benefiting CAH’s bottom line in fiscal 2024. Moreover, strong CapEx plans for continued investments in new product development and capacity expansion, and divesture of non-healthcare portfolio buoy optimism.
In the fourth quarter of fiscal 2023, pharmaceutical revenues totaled $49.7 billion, up 15% on a year-over-year basis. The performance highlights branded pharmaceutical sales growth from existing Pharmaceutical Distribution and Specialty Solutions customers. Medical segment sales were flat at $3.8 billion.
On its fourth-quarter fiscal 2023 earnings call, Cardinal Health raised its adjusted earnings per share (EPS) guidance to $6.50-$6.75 from $6.45-$6.70.
Notable Developments
In September, the company announced the launch of its next-generation Kangaroo OMNI enteral feeding pump in the United States. The new pump’s design will provide more options to patients to meet their personalized needs for enteral feeding. Per CAH, the Kangaroo OMNI is the first and only attitude-independent enteral feeding system launched so far in the country. The device is designed for portability with an option for delivery of a wider variety of enteral formulas. The new pump has a familiar user interface to the earlier Kangaroo pumps. This should help facilitate a smooth transition for patients as well as caregivers, across hospital and home-based care.
In August, Cardinal Health launched its next-generation NTrainer System 2.0. The medical device is expected to help reduce the length of stay in neonatal intensive care units for premature and newborn infants.
CAH continues to expand its distribution centers. In June, the company announced its plans to build a new distribution center in Greenville, SC. The facility will support CAH’s supply of healthcare medical supplies at home, especially for those with chronic and serious health conditions.
In May, the company divulged its plans to open a new distribution center in Ontario, Canada. The center will use state-of-the-art robotics technology to drive efficiencies and accuracy, which will help meet the medical and surgical product demands of Canada’s healthcare system. In April, Cardinal Health opened a new distribution center in Ohio to focus on its U.S. Medical Products and Distribution, and at-Home Solutions businesses.
Cardinal Health, Inc. Price
Cardinal Health, Inc. price | Cardinal Health, Inc. Quote
What's Weighing on the Stock?
The company continues to face high costs to support sales as well as rising operating expenses. Although there is an improving trend for costs and expenses, these are likely to hurt margins in fiscal 2024, especially in the first half. Meanwhile, rising interest rates are a key area of concern amid high CapEx plans.
In the fourth quarter of fiscal 2023, gross margin remained flat year over year. This implies that rising costs are being offset by cost-saving initiatives.
Estimates Trend
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $225.19 billion, indicating a 9.8% improvement from the previous year’s level.
The same for adjusted EPS is pinned at $6.66, indicating a 15% increase from the year-ago reported number. The consensus estimate for adjusted EPS has improved 1.7% in the past 60 days.
Other Stocks to Consider
Some other top-ranked stocks in the broader medical space are Align Technology (ALGN - Free Report) , HealthEquity, Inc. (HQY - Free Report) and McKesson Corporation (MCK - Free Report) .
Align Technology, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 17.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ALGN’s earnings surpassed estimates in two of the trailing four quarters and missed twice, delivering an average negative surprise of 1.76%. The company’s shares have risen 35.9% year to date compared with the industry’s 12% growth.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 23.54%. HQY’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 9.1%.
The company’s shares have rallied 20.7% year to date against the industry’s 12.6% decline.
McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.7%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 8.1%.
The stock has rallied 21.2% year to date compared with the industry’s 12% growth.