Cardinal Health Strong On Medical & Pharmaceutical Segments

On Feb 20, we issued an updated research report on Cardinal Health, Inc. (NYSE:CAH) . The stock carries a Zacks Rank #2 (Buy). The company exited the second quarter on a solid note, courtesy of encouraging performance by the Medical segment. The Pharmaceutical segment also witnessed strong growth in the Specialty business and gained a large number of Pharmaceutical Distribution customers. A strong fiscal 2018 outlook buoys optimism.

Cardinal Health’s share price movement over the last year has failed to impress. The stock has lost almost 17.4%, comparing unfavorably with the industry's gain of around 9.9%. Cardinal Health faces the risk of losing considerable business in case of loss of a major customer, which in turn will severely impair revenues. However, the company’s share price has been rising since the second-quarter earnings release. The stock has gained 4.1% till yesterday’s close.

Cardinal Health’s Medical and Pharmaceutical offerings lend the company a competitive edge in the niche space. The company offers industry expertise and an expanding portfolio of safe products.

Also, Cardinal Health follows an acquisition-driven strategy and continues to focus on investment in key growth businesses to gain market traction and boost profits. Cardinal Health recently announced the acquisition of Medtronic's (NYSE:MDT) Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency business for $6.1 billion. The buyout particularly boosted the company’s Medical segment.

Further,Cardinal Health is pursuing growth via joint ventures and long-term supply agreements. The company entered a long-term strategic agreement with Henry Schein (NASDAQ:HSIC), under which the latter purchased Cardinal Health’s medical supplies for physician practices. The collaboration is expected to drive core sales and prove accretive to Cardinal Health’s earnings in the long term.

Despite growth in business, profits at the company’s Pharmaceutical segment were hurt by generic pharmaceutical pricing. Huge investments in Pharmaceutical IT platform and lackluster generics performance are likely to mar Cardinal Health’s operational efficiency in the upcoming quarter. Intense competition and customer concentration are other bottlenecks.

Other Key Picks

A couple of other top-ranked stocks in the broader medical sector are PerkinElmer (NYSE:PKI) and Bio-Rad Laboratories (NYSE:BIO) .

Bio-Rad Laboratories has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The company has a long-term expected earnings growth rate of 25%.

PerkinElmer has a long-term expected earnings growth rate of 12.3%. The stock carries a Zacks Rank #2.

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