Cardinal Health Inc. (NYSE: CAH) 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 #3 (Hold) company have risen 11.1% in the year-to-date period against the industry's 1.7% decline. The S&P 500 Index has gained 20.6% in the same time frame.
CAH, with a market capitalization of $27.09 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 6.8% compared with the industry's 5.3%. It anticipates earnings to improve 9.6% over the next five years.
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What's Driving CAH's Performance?
Strength in Pharmaceutical Segment: Investors are upbeat about Cardinal Health's Medical and Pharmaceutical offerings, which provide the company with a competitive edge in the niche space.
The segment's products and services comprise pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services, which are expected to majorly drive the quarters ahead. For the past few quarters, the segment has been acting as a key catalyst when it comes to driving growth.
In the fourth quarter of fiscal 2024, pharmaceutical revenues amounted to $55.6 billion, up 13% on a year-over-year basis. The performance reflects branded pharmaceutical sales growth from Pharmaceutical Distribution and Specialty Solutions customers.
The company expects revenues from its Pharmaceutical segment to decline 4-6% year over year in fiscal 2025. The anticipated decline reflects a $39 billion revenue headwind due to the OptumRx contract expiration in June 2024. Segmental profit is likely to increase 1-3% from the previous guidance of at least 1%.
Long-term Supply Agreements: Cardinal Health is also pursuing growth via joint ventures and long-term supply agreements with several firms, which have likely kept the investors interested. The company entered into a long-term strategic agreement with Henry Schein. Under this deal, Henry ...
