Here's Why You Should Retain Cardinal Health (CAH) Stock Now

Cardinal Health Inc (NYSE:CAH). CAH is well-poised for growth on the back of a diversified product portfolio, acquisition-driven strategy and robust pharmaceutical segment. However, margin contraction remains a concern.

Shares of this Zacks Rank #3 (Hold) have gained 8.2% compared with the industry’s growth of 4.8% in the past three months. Further, the S&P 500 Index has declined 3.7% in the same time frame.

The company — with a market capitalization of $14.82 billion — is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It anticipates earnings to improve 6.2% over the next five years. Cardinal Health’s earnings yield is 10.9% compared with the industry’s 3.8%.

What’s Driving the Performance?

Cardinal Health’s Medical and Pharmaceutical offerings provide it with a competitive edge in the niche space. It offers industry expertise through an expanding portfolio of safe products.

The company pursues an acquisition-driven strategy and remains committed to 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 segment’s strength is expected to drive its performance in the days ahead.

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In September, Cardinal Health’s wholly-owned subsidiary, Cardinal Health Canada, announced an employee vaccination requirement policy, which is part of its sustained efforts to protect employees, customers and the Canadian Healthcare system against COVID-19. Taking into consideration the recent and pending provincial government directives and customer protocols in Canada, Cardinal Health Canada aims to have all employees vaccinated by January 2022.

Per the fiscal second-quarter 2021 earnings call, the company has been bolstering its core Medical and Pharmaceutical Distribution and product capabilities as it continues to adapt the resilient business models for the future. Apart from making strategic investments in its IT infrastructure to improve customer experience and digital abilities, the company has been investing in its differentiated portfolio to drive long-term strategic growth in key areas, which can lend support and cater to its customers' needs.

What’s Weighing on the Stock?

In the first quarter of fiscal 2022, gross profit fell 4.3% year over year to $1.64 billion. As a percentage of revenues, gross margin in the reported quarter was 3.7%, down 70 basis points (bps) on a year-over-year basis.

Medical segment profit declined 46% to $123 million, due to higher supply chain costs. Plus, the improvement in profit at the Pharmaceutical segment was largely offset by investments in technology enhancements.

Estimates Trend

For fiscal 2022, the Zacks Consensus Estimate for revenues is pegged at $176.35 billion, indicating an improvement of 8.5% from the previous year’s reported number.

The same for adjusted earnings per share stands at $5.70, suggesting growth of 2.3% from the year-ago reported figure.

Stocks to Consider

Some better-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc (NYSE:TMO). TMO, Abiomed (NASDAQ:ABMD), Inc. ABMD and Laboratory Corporation of America (NYSE:LH) Holdings LH.

Thermo Fisher surpassed earnings estimates in each of the trailing four quarters, the average surprise being 9.02%. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).

Abiomed beat earnings estimates in each of the trailing four quarters, the average surprise being 5.8%. The company currently carries a Zacks Rank #2.

Abiomed’s long-term earnings growth rate is estimated at 20%. The company’s earnings yield of 1.2% compares favorably with the industry’s (3.6%).

Laboratory Corporation surpassed earnings estimates in each of the trailing four quarters, the average surprise being 25.7%. The company currently carries a Zacks Rank #2.

Laboratory Corporation’s long-term earnings growth rate is estimated at 10.6%. The company’s earnings yield of 9.4% compares favorably with the industry’s 3.4%.

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