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Can Cardinal Health (CAH) Pull a Surprise in Q4 Earnings?

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Dublin, OH-based Cardinal Health (CAH - Free Report) , a global player in the healthcare services and products space, is set to report fourth-quarter fiscal 2017 results on Aug 2, before the bell.

The company reported adjusted earnings of $1.53 per share in the last reported quarter, which beat the Zacks Consensus Estimate of $1.46 and increased 7% on a year-over-year basis. The stock has delivered positive earnings surprises in the past four quarters, at an average of 4.05%.

Let’s take a look at how things are shaping up prior to the fourth-quarter earnings announcement.

Factors at Play

Strong Outlook: Management at Cardinal Health is bullish about significant cash generation in the fourth quarter. Furthermore, the company’s Cordis business is expected to generate accretive returns in the quarter.

We note that despite solid commercial momentum on a global basis, the Cordis segment generated sluggish returns in the last reported quarter. However, in the fourth quarter, Cardinal Health is expected to leverage on the Patient Recovery business in the Cordis profile.

Meanwhile, Cardinal Health reaffirmed the fiscal 2017 guidance range for adjusted earnings per share from continuing operations at $5.35–$5.50. The outlook represents growth of approximately 2–5% from the prior fiscal.

Pricing Pressure in Generics Portfolio: Cardinal Health has been grappling with pricing deflation in the generics segment for long. Per management, reimbursement pressure is likely to affect the company’s customer base and also impede generic launches in the near term.Incremental expenses, specifically in the Pharma segment, might dent profits in the fourth quarter.

Cutthroat Competition in Niche 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. Intensifying competition in the global markets is likely to mar Cardinal Health’s top line in the fourth quarter.

Estimate Revision Trend: The company’s estimate revision trend lacks luster. For the current quarter, one analyst moved south, compared to no upward revision in the last two months. Over the last three months, the current quarter estimates declined almost 6.5% to $1.24 per share, adding to our concerns.

Cardinal Health, Inc. Price and EPS Surprise


Cardinal Health, Inc. Price and EPS Surprise | Cardinal Health, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Cardinal Health is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. This is not the case here, as you will see below.

Zacks ESP:The Earnings ESP for Cardinal Health is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.24. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cardinal Health currently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s unfavorable ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are a few companies you may want to consider as our proven model shows that they have the right combination of elements to post an earnings beat this quarter:

Genomic Health Inc. (GHDX - Free Report) has an Earnings ESP of +16.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Halyard Health, Inc. (HYH - Free Report) has an Earnings ESP of +5.26% and a Zacks Rank #2.

Pfizer Inc. (PFE - Free Report) has an Earnings ESP of +1.54% and a Zacks Rank #3.

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