On Monday, TD Cowen maintained a Hold rating on Cardinal Health (NYSE:CAH) with a steady stock price target of $109.00, following the healthcare company's announcement that it will not be renewing its pharmaceutical distribution contracts with OptumRx when they expire at the end of June 2024.
Despite this development, Cardinal Health has reaffirmed its fiscal 2024 non-GAAP diluted earnings per share (EPS) guidance in the range of $7.20 to $7.35.
Cardinal Health also reiterated its long-term segment profit compound annual growth rate (CAGR) target of 4% to 6% for its Pharmaceutical and Specialty Solutions, as well as its consolidated non-GAAP EPS CAGR target of 12% to 14% for fiscal years 2024 to 2026, using fiscal 2023 as the baseline.
The analyst from TD Cowen commented on the situation, noting that while the non-renewal of the OptumRx contracts is a setback, it is not expected to impact the fiscal year 2024. The affirmation of the long-term adjusted EPS and segment growth targets by Cardinal Health was seen as a positive sign.
The analyst estimated that the impact on Cardinal Health's fiscal year 2025 adjusted EPS could be between 3% to 4% of their $7.99 estimate for that year. They suggested that this potential decrease could be mitigated by new customer acquisitions and growth in specialty areas.
The loss of the OptumRx contracts, which largely consisted of bulk shipments to Optum's mail-order facilities, is estimated to have generated a significantly lower operating margin, roughly 0.25% to 0.30%, compared to the overall Pharmaceutical segment operating margin of 1% in fiscal 2023.
While it remains uncertain where OptumRx might transfer its distribution contracts, there have been reports indicating a potential move to McKesson Corporation (NYSE:NYSE:MCK), which could result in a 1% potential benefit to the analyst's fiscal year 2025 adjusted EPS estimate of $31.35 for McKesson.
InvestingPro Insights
In light of TD Cowen's hold rating on Cardinal Health (NYSE:CAH) and the company's recent announcement regarding their OptumRx contracts, insights from InvestingPro can provide additional context for investors.
Cardinal Health's management has demonstrated confidence through aggressive share buybacks, and the company has a notable history of raising its dividend, doing so for 42 consecutive years, which may appeal to income-focused investors.
InvestingPro Data shows that Cardinal Health has a market capitalization of 25.05 billion USD and is trading at a P/E ratio of 18.0 based on last twelve months as of Q2 2024, which could indicate a potentially favorable valuation relative to near-term earnings growth. Additionally, the company's robust revenue growth of 11.99% over the last twelve months signals solid top-line expansion.
Two InvestingPro Tips for Cardinal Health include the company's high shareholder yield and the expectation for net income growth this year. These factors, along with a strong free cash flow yield, suggest that the company is managing its resources effectively to deliver value to shareholders.
For those interested in further insights, there are an additional 17 InvestingPro Tips available for Cardinal Health, which can be accessed for a deeper analysis. To enhance your investment research, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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