Cardinal Health's (CAH Quick QuoteCAH - Free Report) pharmaceutical segment has consistently demonstrated resilience and growth, driven by strong demand across brand, specialty, and generic pharmaceuticals. Historical performance highlights the company's ability to navigate market fluctuations, with key revenue contributions from GLP-1 medications and specialty distribution.

CAH’s focus on expanding its specialty pharmaceutical business positions it well to capitalize on industry trends favoring high-value therapeutics. As seen in the previous quarters, demand for specialty pharmaceuticals continues to outpace traditional distribution channels, providing a sustainable margin expansion opportunity.

The GMPD segment, previously a challenge for Cardinal Health, has made significant strides in its turnaround efforts, with management executing a disciplined improvement plan. Inflation easing measures, supply-chain optimizations and operational efficiencies have returned the business to profitability. The company's fiscal 2024 results confirmed that GMPD delivered a year-over-year segmental profit improvement of approximately $240 million, highlighting its ability to recover from previous losses.

CAH’s shares have lost 7.2% so far this year compared with the industry’s 4% decline and the S&P 500 Index’s 4.6% decrease.

YTD-Price Performance

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CAH’s Potential

Looking ahead, Cardinal Health’s strategic emphasis on specialty solutions, supported by recent acquisitions, such as GI Alliance and ION, is expected to drive long-term growth and further strengthen its position within high-margin therapeutic areas. The integration of these specialty networks will likely enhance the company’s ability to serve a broader patient base while maintaining steady revenue expansion in the pharmaceutical segment.

Cardinal Health remains committed to achieving its fiscal year 2026 target of $300 million in its GMPD segmental profit, suggesting that continued cost containment strategies and productivity enhancements will remain key areas of focus.

Additionally, the company has identified further opportunities to unlock at least $500 million in cash flow over the next two years through working capital improvements and business simplifications. While risks remain, particularly in labor and supply-chain costs, the ongoing execution of GMPD’s transformation plan should provide incremental earnings upside.

Analysts have been raising earnings estimates for fiscal 2025 and 2026, implying continued improvement in business going forward.

Earnings Estimate Improves

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CAH’s Long-Term Growth Drivers

Strategic acquisitions and business portfolio expansion have positioned Cardinal Health for long-term growth beyond traditional pharmaceutical distribution. The acquisitions of specialty networks and ongoing investments in at-Home Solutions, Nuclear, and OptiFreight demonstrate a shift toward high-margin, high-growth business segments. These areas have delivered strong financial contributions, with OptiFreight and Nuclear benefiting from favorable industry dynamics.

Management’s forward-looking strategy suggests an increasing focus on specialty and integrated solutions, which should drive long-term shareholder value. Cardinal Health’s capital allocation strategy aligns with this growth trajectory, striking a balance between acquisitions and disciplined share repurchases, as evident from its $750 million share buyback commitment for fiscal 2025. As these growth initiatives scale, they are expected to generate stable cash flows and contribute meaningfully to overall earnings improvement.

Lower Sales & Margin Pressure to Continue

Cardinal Health continues to perform well in its core segments but faces temporary revenue headwinds due to customer contract transitions. The expiration of a major contract with Optum Rx contributed to a year-over-year revenue decline in fiscal 2025 despite strong underlying demand. However, management has taken proactive steps, including expanding relationships with new customers and enhancing operational efficiencies. Given the scale of its pharmaceutical distribution business, these losses are expected to be short-lived.

As new customer contracts take effect and revenue streams stabilize, the long-term outlook remains positive, supported by sustained pharmaceutical demand and growth in specialty business lines.

Rising healthcare costs and operational expenses, particularly in the GMPD segment, have put pressure on margins. Inflation mitigation efforts have been effective, but unexpected cost pressures, including higher employee healthcare expenses, have impacted earnings.

Management is implementing cost-containment strategies, but macroeconomic challenges, such as wage inflation and supply chain disruptions, pose significant risks. Competitive pressures in pharmaceutical distribution further constrain pricing power, though Cardinal Health is leveraging specialty networks, logistics solutions and supply-chain technologies to maintain an edge. While COVID-19 vaccine-related revenue declines pose a challenge, the company’s diversified revenue base and focus on specialty pharmaceuticals position it for long-term stability and growth.

CAH P/E F12M vs Industry

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CAH currently carries a Zacks Rank #3 (Hold). However, the Style Scores look quite promising. The company has a Value Score of A and a Growth Score of C. The valuation chart also shows the significant discount for CAH stock compared with the industry. Although the valuation is lower than the industry, it still remains above CAH’s five-year median. Moreover, the Momentum score of ‘D’ implies moderation of the current uptrend.

As such, we believe that investors may hold the stock for now. However, we caution against any new position.

CAH’s Zacks Rank & Stocks to Consider

Currently, CAH carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Masimo (MASI Quick QuoteMASI - Free Report) , Cencora, Inc. (COR Quick QuoteCOR - Free Report) and Boston Scientific Corporation (BSX Quick QuoteBSX - Free Report) .

Masimo, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 20% for 2025. MASI’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 14.41%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Masimo’s shares have gained 0.7% against the industry’s 3% decline so far this year.

Cencora, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.1%. COR’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 4.9%.

Cencora’s shares have gained 19.5% compared to the industry’s 6% decline year to date.

Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.3%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.3%.

Boston Scientific’s shares have rallied 15.4% compared with the industry’s 7.2% growth so far this year.