Cardinal Health: Hold Rating Affirmed Amidst Mixed Financial Outlook and Strategic Focus

Analyst George Hill of Deutsche Bank maintained a Hold rating on Cardinal Health (CAH – Research Report), with a price target of $110.00.

George Hill has given his Hold rating due to a combination of factors that affect the future financial performance of Cardinal Health. The company has raised its FY24 EPS guidance and reduced its effective tax rate, suggesting better-than-expected earnings for the coming quarter, particularly in its Pharmaceutical and Specialty Solutions (PS&S) profit and Other revenue streams. However, the preliminary FY25 outlook, which includes the impact of the non-renewal with OptumRx, forecasts earnings per share that are below market expectations. Although there is a projected annualized operating profit impact from the OptumRx situation, this impact appears to be less significant than initially anticipated by investors. Furthermore, Cardinal Health continues to focus on specialty areas as a key driver of long-term growth, despite the forthcoming revenue decline in PS&S in the first half of 2025 due to the OptumRx loss.

In terms of capital allocation, the company anticipates strong free cash flow through FY26, with a possible temporary dip in FY25. The share repurchase guidance for FY24 is set at $750 million, which does not indicate further action in the current quarter but still exceeds the baseline amount. Given the preliminary baseline guidance for share repurchases in FY25, there could be potential upside. Cardinal Health’s Q3 results also play a role in the Hold rating, where total revenue fell short of expectations and segment revenue growth was driven primarily by brand and specialty sales growth among existing customers. The company’s commitment to achieving a profit target in its Global Medical Products and Distribution (GMPD) segment by FY26 through volume growth in Cardinal Health brand products further underscores the cautious optimism reflected in the Hold rating.

In another report released on May 3, Bank of America Securities also reiterated a Hold rating on the stock with a $115.00 price target.

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Cardinal Health (CAH) Company Description:

Cardinal Health, Inc. is a healthcare services and products company, which engages in the provision of customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices. It also provides medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency. The company operates through the following segments: Pharmaceutical and Medical. The Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical and over-the-counter healthcare and consumer products. The Medical segment manufactures, sources and distributes cardinal health branded medical, surgical and laboratory products. The company was founded by Robert D. Walter in 1979 and is headquartered in Dublin, OH.