Cardinal Health Faces Earnings Uncertainty Post OptumRx Contract Loss: Analyst Holds Rating

Ann Hynes, an analyst from Mizuho Securities, maintained the Hold rating on Cardinal Health (CAH – Research Report). The associated price target remains the same with $104.00.

Ann Hynes has given his Hold rating due to a combination of factors surrounding Cardinal Health’s recent developments. One critical aspect is the non-renewal of the OptumRx contract, which was a significant contributor to Cardinal Health’s revenue. This loss of contract, which is set to expire at the end of June 2024, is particularly impactful because it represented a substantial portion of the company’s pharmaceutical distribution business. Although Cardinal Health has maintained its FY24 adjusted EPS guidance, the inability to renew this contract introduces uncertainty regarding the company’s ability to achieve its long-term earnings growth targets in the Pharmaceutical and Specialty Solutions segment.

Furthermore, the OptumRx contract accounted for a significant 16% of Cardinal Health’s FY23 consolidated revenue, mainly from non-specialty shipments that yield lower margins. Hynes estimates that this contract’s expiration could result in an adjusted EPS headwind of approximately 5%-7% for FY25. While Cardinal Health anticipates offsetting some of the loss through new customer acquisitions and specialty growth, the loss still presents a notable challenge to meeting future earnings projections. The maintenance of adjusted free cash flow guidance provides some reassurance, yet the expectation of lower FY25 cash flow due to the contract loss adds to the cautious stance reflected in the Hold rating.

According to TipRanks, Hynes is a 5-star analyst with an average return of 7.3% and a 59.84% success rate. Hynes covers the Healthcare sector, focusing on stocks such as Cigna, Humana, and Cardinal Health.

In another report released on April 22, TD Cowen also reiterated a Hold rating on the stock with a $109.00 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.