CAH Stock Up Nearly 7% This Year: Is Now the Time to Buy?

Cardinal Health Inc. CAH is well-poised for growth, given its long-term supply agreements, diversified product portfolio and strong quarterly earnings. However, the possibility of losing a major customer remains a risk.Shares of the company have risen 6.9% so far this year compared with the medical dental supply industry’s 1.1% growth. The S&P 500 Index has declined 2.2% in the same time frame. CAH, with a market capitalization of $30.56 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 6.3% compared with the industry's 5.7%. It anticipates earnings to improve 9.5% in the next five years.YTD CAH Stock Price vs IndustryImage Source: Zacks Investment ResearchReasons Favoring CAH’s GrowthDiversified Product Portfolio: Cardinal Health's Medical and Pharmaceutical offerings give it a competitive edge. In 2024, the company made several innovations across its healthcare segments. Early in the year, it introduced Advanced Therapy Connect, a streamlined cell and gene therapy ordering solution. It also became the first to offer actinium-225 at a commercial scale, expanding access to new cancer treatments through a collaboration with TerraPower.Throughout the year, Cardinal Health significantly increased GE Healthcare’s Vizamyl production by 70% and plans to double manufacturing sites by fiscal 2025. The company also achieved 90% U.S. production for syringes and opened a new distribution center in Massachusetts to enhance warehouse capacity.In logistics, TotalVue Insights saw enhancements to improve customer analytics. Additionally, the company announced three more product launches for fiscal 2025–2026. These initiatives highlight Cardinal Health’s commitment to innovation, operational efficiency, and expanding its capabilities across pharmaceuticals, nuclear medicine, and supply-chain solutions.Expanding Distribution Business: In 2024, Cardinal Health actively managed its supply agreements and distribution contracts. The company successfully onboarded new customers, including notable acute health systems, expanding its distribution business. It also reported strong performance from BioPharma Solutions, with its specialty third-party logistics (3PL) business growing over 20% in the second quarter.Additionally, CAH has been integrating the GI Alliance and ION acquisitions into its specialty distribution network, expanding its presence in non-oncology therapeutic areas such as gastroenterology, urology and rheumatology. The Navista platform is also seeing increased engagement due to expanded offerings from these integrations.Furthermore, CAH is navigating potential tariff impacts by reducing reliance on Chinese manufacturing and nearshoring operations to Latin America. The company is currently building a new distribution center in Fort Worth, TX, to support its at-Home Solutions business.Strong Q2 Results: Cardinal Health exited the fiscal second quarter on a positive note, with both earnings and revenues beating the respective Zacks Consensus Estimate. The company continued to witness strong demand for its Pharmaceutical and Specialty solutions. However, sales are likely to be under pressure due to OptumRx contract expiration.Meanwhile, CAH’s medical products, At-Home Solutions, Nuclear and Precision Health Solutions, and OptiFreight Logistics are likely to support top-line growth going forward. Improvement in segmental profit looks promising. The expansion of gross margin also bodes well. Cardinal Health raised its fiscal 2025 guidance for earnings. The company now anticipates adjusted earnings per share (EPS) to be between $7.85 and $8.00, up from the previous guidance of $7.75-$7.90.CAH Shares Cheaper Than IndustryAlthough CAH’s shares have outperformed the industry in the past year, its valuation remained below the industry average. The company is trading at a P/E forward 12-month of 14.61X compared to the industry’s 16.98X. However, CAH’s current valuation is trading at a premium to its five-year median of 12.27X.CAH 5-Year Stock Valuation HistoryImage Source: Zacks Investment ResearchFactors That May Offset CAH’s GainsCardinal Health is navigating several challenges that are affecting its operations and financial performance. One of the key issues is the GMPD Improvement Plan, where the company is addressing underperformance in its Global Medical and Procedural Distribution (“GMPD”) segment. This includes overcoming soft respiratory product volumes and a $15 million write-off in WaveMark due to uncollectible receivables.Additionally, CAH is closely monitoring tariffs and trade policies, particularly with China and Mexico, as new regulations could impact sourcing costs and pricing strategies. To mitigate risks, the company is shifting more production to Latin America and Southeast Asia to improve supply-chain resiliency.Another challenge comes from customer contract expirations, which contributed to revenue declines. However, CAH is actively securing new customer acquisitions and expanding its specialty services to offset these losses. Financially, the company is also balancing debt reduction following recent acquisitions while managing higher interest expenses from new financing. Additionally, CAH is navigating healthcare cost inflation, evolving reimbursement models and market shifts affecting product demand.CAH’s Estimate TrendThe Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $222.62 billion, indicating a 1.9% decline from the previous year’s level.The Zacks Consensus Estimate for adjusted EPS is pinned at $7.94, indicating a 5.4% increase from the year-ago reported numbers. The consensus estimate for adjusted EPS has improved 1.5% in the past 60 days.CAH EPS Estimate RevisionImage Source: Zacks Investment ResearchSales Growth EstimateImage Source: Zacks Investment ResearchIs Cardinal Health Stock A Buy?CAH remains well-positioned for growth, supported by its diversified product portfolio, expanding distribution network and strong financial performance. The company continues to drive innovation and operational efficiency while mitigating risks such as contract expirations and supply-chain challenges.Despite facing hurdles in its GMPD segment and external market pressures, CAH’s proactive strategies, new customer acquisitions, and specialty service expansions provide optimism for sustained earnings growth. With an improving earnings outlook and a solid valuation, CAH is poised to navigate industry challenges and capitalize on emerging opportunities, making it a strong contender in the healthcare distribution space.The company’s Value score of ‘A’, along with the Growth score ‘C’, implies that the recent uptrend is likely to continue in the future. However, the Momentum score of ‘F’ may lead to a slower gain in the share price for the time being. CAH currently carries a Zacks Rank #2 (Buy). Investors may consider adding CAH stock to boost their portfolio’s return in 2025.Cardinal Health, Inc. Stock Price Cardinal Health, Inc. price | Cardinal Health, Inc. QuoteOther Stocks to ConsiderSome other top-ranked stocks in the broader medical space are Masimo MASI, Boston Scientific BSX and Aveanna Healthcare AVAH. At present, Masimo sports a Zacks Rank #1 (Strong Buy), whereas Boston Scientific and Cardinal Health carry a Zacks Rank #2 each.Masimo’s shares have gained 5.6% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.Estimates for MASI’s 2024 EPS have increased 1.2% to $4.10 in the past 30 days. MASI’s earnings beat estimates in each of the trailing four quarters, the average surprise being 17.1%. In the last reported quarter, it posted an earnings surprise of 16.6%.Estimates for Boston Scientific’s 2025 EPS have jumped 2.9% to $2.85 in the past 30 days. Shares of the company have surged 10.9% so far this year compared with the industry’s growth of 10.4%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.25%. In the last reported quarter, it delivered an earnings surprise of 7.69%.Estimates for Aveanna Healthcare’s 2025 EPS have remained stable at 7 cents in the past 30 days. Shares of the company have lost 15.7% so far this year against the industry’s 4.4% growth. AVAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 9.6%. In the last reported quarter, it delivered an earnings surprise of 135.00%.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Boston Scientific Corporation (BSX): Free Stock Analysis Report Cardinal Health, Inc. (CAH): Free Stock Analysis Report Masimo Corporation (MASI): Free Stock Analysis Report Aveanna Healthcare Holdings Inc. (AVAH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks