In business for more than four decades, the health services and products company Cardinal Health, Inc. (CAH - Get Rating) has advanced  23.4% over the past 10 years to close Friday’s trading session at $52. Moreover, CAH’s revenue has increased at a CAGR of 5.7% over the past three years.

Because the ongoing COVID-19 mass vaccination drive is making people reconsider visiting hospitals to undergo postponed surgeries for non-COVID-19 related health issues, the company is expected to witness an increase in demand for its offerings, such as surgical, and laboratory products, and single-use surgical drapes. With the increase in the number of hospital visits for non-COVID matters, the company is expected to witness increased demand for its products including medical gowns and apparel, and operating room supplies.

CAH is strategically positioned to gain both amid the pandemic and in the post-pandemic era. For instance, the company was selected by the Ohio Department of Health in December 2020 to support its efforts to distribute COVID-19 vaccines by arranging transportation within the state. CAH also reached an agreement with the Centers for Disease Control and Prevention (CDC) in November 2020 to act as a network administrator in Phase 2 of the Federal Pharmacy Partnership Strategy for COVID-19.

Here what I think could shape CAH’s performance:

Discounted Valuation

In terms of non-GAAP forward p/e, the stock is trading at 8.55x, which is significantly lower than the industry average 24.78x. Also, CAH’s forward ev/s of 0.11x is much lower than the industry average 8.94x. And in terms of forward p/s, the stock’s 0.09x is much lower than the industry average  9.77x.

Impressive Recent Financials

CAH’s  revenue climbed 6.3% sequentially to $41.54 billion for the fiscal 2021 second quarter, ended December 31, 2021. Its revenue from the Pharmaceutical segment increased 4.5% year-over-year to $37.24 billion over the same period, driven primarily by sales growth from Pharmaceutical Distribution and Specialty Solutions customers. Moreover, CAH’s revenue from the Medical segment increased more than 7% to $4.31 billion. It was mainly driven by a net positive impact from COVID-19, specifically  the impact of personal protective equipment (PPE) sales and higher volumes in the company’s lab business.

Over the same period, CAH’s net earnings increased 185.9% year-over-year to $629 million and its non-GAAP EPS increased 14.5% year-over-year to $1.74. The company has also surpassed consensus EPS estimates in each of the trailing four quarters.

Favorable Analyst Estimates

Analysts expect the company’s revenue to increase 10.3% for the quarter ending June 30, 2021. Its EPS is expected to grow 16.3% for the quarter ending June 30, 2021, 10.3% in fiscal 2021 and at a rate of 7.6% per annum over the next five years.

CAH has an average broker rating of 1.75, which indicates favorable analyst sentiment. Wall Street analysts expect the stock to hit $63.06 in the near term, which indicates a potential upside of 22.8%.

POWR Ratings Indicate Solid Prospects

CAH has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. The stock has a grade of A for Value, consistent with discounted valuation.

CAH has a grade of B for growth, in sync with the expected increase in revenue and EPS. CAH has a grade of B for Stability as well.

The stock is rated for Momentum, Sentiment and Quality as well. Get all CAH’s ratings here.

CAH is ranked #5 of 77 stocks in the Medical – Services industry.

Click here to access several other top-rated stocks in the same industry.

Bottom Line

We think CAH’s strong fundamentals and market dominance should drive the performance of the stock. Also,  the stock is also trading at a discount now, so it might have plenty of upside left because  demand for its products and services is expected to increase in the coming months.

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CAH shares were trading at $51.93 per share on Monday morning, down $0.07 (-0.13%). Year-to-date, CAH has declined -3.04%, versus a 3.78% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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