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Reiterate Cardinal at Neutral

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On Feb 11, 2013 we retained Cardinal Health (CAH - Free Report) at Neutral after the company beat Zacks Consensus Estimates for revenues and earnings in second quarter fiscal 2013. The results came despite a drop in revenue following the end of the contract with Express Scripts Holding Company (ESRX - Free Report)  

Why the Retention?

On February 5, Cardinal Health posted second-quarter fiscal 2013 adjusted earnings of 93 cents per share, beating the Zacks Consensus Estimate of 85 cents per share and surpassing the year-ago earnings of 81 cents a share. Revenues in the reported quarter dropped 7% year over year to $25,232 million, beating the Zacks Consensus Estimate of $24,598 million.

Over the past 30 days, the Zacks Consensus Estimate for fiscal 2013 has moved up by just 3 cents to $3.47 while for fiscal 2014 it has remained stagnant at $3.76 during the same timeframe.

For fiscal 2013, Cardinal narrowed its forecast for adjusted earnings per share from continuing operations to a band of $3.42 and $3.50 from $3.35 to $3.50 earlier.

Cardinal stands to gain from the gradual shift in mix from bulk to the higher margin non-bulk sector of the Pharmaceutical segment. Its mainstay Pharmaceutical segment is heavily influenced by the generic wave. Overall, Cardinal is benefiting from a spate of tuck-in acquisitions and capital deployment strategies. The company continues to deploy capital to boost investor confidence via share repurchases and dividend hikes. However, Cardinal faces tough competition across all its business segments, which may continue to pressure pricing and margins.

Other Stocks to Consider

Cardinal Health currently carries a Zacks Rank #3 (Hold). Rite Aid Corporation (RAD - Free Report) and AmerisourceBergen Corporation (ABC - Free Report) carry Zacks Rank #1 (Strong Boy) and Zacks Rank #2 (Buy), respectively, and are expected to do well. 

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