Cardinal Health Inc. (CAH - Free Report) is well poised for growth on the back of diversified product portfolio, acquisition-driven strategy and the robust pharmaceutical segment. However, intense competition remains a concern.
The stock has gained 5.5%, against the industry’s decline of 12.7% in a year’s time. Further, the S&P 500 Index rose 0.3% in the same time frame.
The company — with a market capitalization of $13.89 billion — is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It anticipates earnings to improve 4.3% over the next five years. Moreover, Cardinal Health beat EPS estimates in each of the trailing four quarters,with the average surprise being 18.7%.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Deterring the Stock?
Cardinal Health faces tough competition in each of its business segments. Consequently, stiff competition continues to raise concern when it comes to the company’s overall performance.
Cardinal Health’s Medical and Pharmaceutical offerings provide the company with a competitive edge in the niche space. It offers industry expertise through an expanding portfolio of safe products.
The company follows an acquisition-driven strategy and remains committed toward investment in key growth businesses to gain market traction and bolster profits.
Cardinal Health’s Pharmaceutical segment is the second largest pharmaceutical distributor in the United States. The segment’s products and services comprise pharmaceutical distribution, manufacturer and specialty solutions, and nuclear and pharmacy offerings. The strength of the segment is anticipated to drive performance in the days ahead.
In third-quarter fiscal 2020, pharmaceutical revenues improved 11.9% on a year-over-year basis to $35.11 billion. The upside can be attributed to sales growth from Pharmaceutical Distribution and Specialty Solutions customers.
In fourth-quarter fiscal 2019 earnings call, Cardinal Health announced that it anticipates incremental cost savings of $130 million associated with actions intended to optimize, and simplify operating model and cost structure. The company anticipates benefits from abovementioned initiatives and additional actions to continue to improve through the balance of 2020. This is likely to drive the company’s margins in the days ahead.
Which Way are Estimates Headed?
For fiscal 2020, the Zacks Consensus Estimate for revenues is pegged at $152.52 billion, indicating an improvement of 4.8% from the previous year. The same for adjusted earnings per share stands at $5.18, suggesting a decline of 1.9% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space include Aphria Inc. (APHA - Free Report) , HMS Holdings Corp. (HMSY - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Aphria has an estimated long-term earnings growth rate of 24.6%.
HMS Holdings has an estimated long-term earnings growth rate of 11%.
West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.
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