Maintaining a Buy Rating: Cardinal Health’s Strong Fundamentals and Growth Prospects Despite OptumRx Contract Loss

Leerink Partners analyst Michael Cherny has maintained their bullish stance on CAH stock, giving a Buy rating yesterday.

Michael Cherny has given his Buy rating due to a combination of factors that suggest Cardinal Health’s fundamentals remain strong despite the recent setback of losing the OptumRx contract. Despite the surprise non-renewal, Cherny believes that Cardinal Health’s current valuation provides a cushion compared to peers, with a price target multiple significantly lower than that of competitors like McKesson and AmerisourceBergen. The assumption is that this is an isolated event and not indicative of an escalating competitive environment that could lead to broader industry margin pressures. Furthermore, he sees Cardinal Health’s pharmaceutical segment as having sufficient growth drivers to maintain a growth rate that justifies its valuation and discount to competitors.

Cherny acknowledges the importance of the OptumRx contract, which accounted for a significant portion of Cardinal Health’s revenue, but notes that the margins were likely thin. With the loss of this contract, the expectation is that Cardinal Health will engage in share buybacks and mergers and acquisitions, as well as implement cost-cutting measures to mitigate the impact. Adjustments to the financial model reflect a lowered earnings per share estimate, yet even with these adjustments, projected growth in the pharmaceutical segment remains in line with long-term goals. Additionally, potential new business wins that have not been officially announced could further bolster Cardinal Health’s position.

In another report released yesterday, Barclays also assigned a Buy rating to the stock with a $117.00 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.