On Friday, Baird maintained an Outperform rating on Cardinal Health (NYSE:CAH) and slightly raised the price target to $134 from $133. The firm's analyst cited a belief that the company's stock is being undervalued due to rumors about Optum insourcing and doubts about improvements in its Medical segment.
The analyst pointed out that Cardinal Health's current valuation, at 14.6 times next twelve months (NTM) price-to-earnings (P/E) and 9.0 times NTM enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), is lower than the peer average of 18.1 times NTM P/E and 13.2 times NTM EV/EBITDA. This discrepancy was described as punitive by the analyst.
The rationale for maintaining the Outperform rating and the price target increase is based on the belief that even when applying lower valuation metrics compared to its peers, Cardinal Health presents the best return to target. The analyst also reaffirmed the company as the '2024 Best Idea', signaling strong confidence in its market performance.
The slight adjustment in the price target from $133 to $134 reflects a nuanced view of the company's value, considering the current market conditions and the company's financial metrics. The analyst's comments indicate a positive stance on Cardinal Health's prospects, despite the challenges and rumors surrounding the company.
Cardinal Health shares are being closely watched by investors as the company continues to navigate the competitive healthcare distribution and services landscape.
InvestingPro Insights
Recent analysis from InvestingPro underscores the potential that Baird sees in Cardinal Health (NYSE:CAH). An InvestingPro Tip highlights that the company has been consistently raising its dividend for an impressive 36 years, which speaks to a strong track record of returning value to shareholders. This is complemented by the company's high shareholder yield and a history of 42 consecutive years of maintained dividend payments, reinforcing its appeal to income-focused investors.
On the valuation front, Cardinal Health's P/E ratio stands at 43.43, with an adjusted P/E ratio for the last twelve months as of Q2 2024 at 19.31, suggesting a more favorable valuation relative to near-term earnings growth. Additionally, with a PEG Ratio of 0.27 for the same period, the company could be seen as undervalued when factoring in its earnings growth rate. Moreover, the firm's strong free cash flow yield, as noted by an InvestingPro Tip, indicates that the stock may be trading at an attractive valuation.
For those considering an investment in Cardinal Health, there are over 17 additional InvestingPro Tips available, which could provide further insights into the company's financial health and market position. Interested investors can take advantage of these insights with an exclusive offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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