Company Reports

Narrow-moat Cardinal Health reported this morning that its contract with UnitedHealth Group’s Optum Rx will not be renewed. Cardinal signed a multiyear contract with Optum in June 2015 to supply generic and branded pharmaceuticals to Optum’s mail and specialty pharmacies. It was set to expire in June 2024. Over the past three fiscal years, Optum served as a key customer for Cardinal, making up 15%, 16%, and 16% of its total sales, respectively. According to the Drug Channels Institute, Optum Specialty Pharmacy made up roughly 13% of overall prescription revenue from specialty drugs in the US in 2023. On the news, the stock dropped approximately 5%.

Cardinal Health is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $190 billion in annual US drug distribution sales in fiscal 2023, the company supplies roughly one fourth of the overall market. Its two close competitors are Cencora and McKesson. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the US market.

Narrow-moat Cardinal Health reported second-quarter earnings that came in higher than our expectations. Total sales were up 11.6% year over year as the base distribution business continues to clock in robust performance. After slightly raising our near-term outlook and accounting for time value of money impacts, we raise our fair value estimate to $93 per share from $90.

Cardinal Health is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $190 billion in annual U.S. drug distribution sales in fiscal 2023, the company supplies roughly one fourth of the overall market. Its two close competitors are Cencora and McKesson. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Narrow-moat Cardinal Health reported fiscal 2024 first-quarter results that were slightly ahead of our expectations. Total sales were up 10.4% year over year thanks to strong performance from the distribution business, with slight offsets from the medical segment. Prescription utilization remains strong, and growth in specialty drugs and GLP-1 medications (diabetes and obesity drugs) continues to buoy demand. Against the backdrop of an improved outlook for the pharmaceutical segment, coupled with higher-than-expected contributions from COVID-19 products, the firm raised its full-year guidance for adjusted diluted EPS to $6.75-$7.00 from $6.50-$6.75. After updating our model and accounting for the time value of money, we are raising our fair value estimate to $90 per share from $85.

Cardinal Health is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $190 billion in annual U.S. drug distribution sales in fiscal 2023, the company supplies roughly one fourth of the overall market. Its two close competitors are Cencora and McKesson. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Cardinal Health is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $190 billion in annual U.S. drug distribution sales in fiscal year 2023, the company supplies roughly a quarter of the overall market. Its two close competitors are Cencora and McKesson. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Narrow-moat Cardinal Health delivered strong fourth-quarter results and ended fiscal-year 2023 with better-than-expected numbers. Total sales during the quarter were up 13.5% year over year as solid distribution business continues to carry the company’s top line. On a favorable backdrop of healthy prescription trends, management updated fiscal 2024 guidance that it provided in June and raised sales growth expectations for its pharmaceutical segment to 10%-12% from a previous 10%. After updating our near-term assumptions as well as adjusting for the time value of money, lowered share count, and model roll, we raise our fair value estimate to $85 from $69.

Cardinal Health is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $190 billion in annual U.S. drug distribution sales in fiscal year 2023, the company supplies roughly a quarter of the overall market. Its two close competitors are AmerisourceBergen and McKesson. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Narrow-moat Cardinal Health reported better-than-expected results third-quarter results. Total sales were up 12.6% year over year driven by strong performance from its core distribution business. We are maintaining our fair value estimate of $67 per share as minor upticks in near term assumptions did not have any material impacts.

Narrow-moat Cardinal Health reported fiscal second-quarter earnings that were slightly ahead of our assumptions. The top line for the quarter increased 13.2% year over year, driven by pharmaceutical (up 15.2%) and offset by medical (down 7.1%). We maintain our fair value estimate of $67 per share.

After reviewing our key valuation assumptions, we have maintained our fair value estimate of $67 for Cardinal Health.

Cardinal Health is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $165 billion in annual U.S. drug distribution sales in fiscal year 2022, the company supplies roughly a quarter of the overall market. Its two close competitors are AmerisourceBergen and McKesson. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market.

Narrow-moat Cardinal Health posted strong first-quarter results despite expected margin challenges. Though core drug distribution is rebounding, the firm was affected by global supply constraints more heavily than its peers because of its equipment distribution component. Given our short-term outlook on these supply constraints, we maintain our fair value estimate of $67 per share.

We are raising our fair value estimate on narrow-moat Cardinal Health to $67 from $52 per share after diving deeper into our assumptions and coming away with a more favorable outlook for the company overall. We have also factored in its strong fourth-quarter performance. Results in the firm’s core distribution business were consistent with rebounding prescription drug volume and primary-care patient visits. Meanwhile, the impact of cost inflation was less severe than anticipated, which we believe signals a more positive start to 2023. Management’s guidance for next year includes low-double-digit revenue growth and low-single-digit profit growth in the distribution segment. We expect supply headwinds will be strongest in the first half of the year.

Cardinal Health is a leading domestic wholesaler of branded, generic, and specialty pharmaceutical products. With over $180 billion in annual U.S. drug distribution revenue, Cardinal Health supplies over one quarter of the overall market, slightly outpaced by AmerisourceBergen and McKesson in market share. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market. The highly consolidated pharmaceutical wholesale market reflects the substantial scale-based cost advantages held by the largest players.

Narrow-moat Cardinal Health posted strong fiscal fourth-quarter results despite heightened supply chain constraints, rounding out a solid fiscal year. Following an announced leadership transition, the firm maintained its positive 2023 guidance. Given Cardinal's resilience against this quarter’s heavy cost pressures, we plan to slightly raise our fair value estimate.

Cardinal Health is a leading domestic wholesaler of branded, generic, and specialty pharmaceutical products. With over $180 billion in annual U.S. drug distribution revenue, Cardinal Health supplies over one quarter of the overall market, slightly outpaced by AmerisourceBergen and McKesson in market share. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market. The highly consolidated pharmaceutical wholesale market reflects the substantial scale-based cost advantages held by the largest players.

While we continue to be pleased with the solid performance of Cardinal Health's core pharmaceutical distribution business (comprising around 90% of total company revenue, or 85% of operating profit), inflationary pressures appear poised to continue to pressure margin in the company's underperforming medical products business. Nonetheless, we remain reassured by the company's recent revamp of its IT infrastructure in its pharm distribution operations, and by management's expectations for the company to recognize the benefits from this conversion in fiscal 2023 and see low- to mid-single-digit operating profit growth. Accordingly, we are raising our fair value estimate to $52 per share, from $50.

Cardinal Health is a leading domestic wholesaler of branded, generic, and specialty pharmaceutical products. With over $160 billion in annual U.S. drug distribution revenue, Cardinal Health supplies over one quarter of the overall market, slightly outpaced by AmerisourceBergen and McKesson in market share. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the U.S. market. The highly consolidated pharmaceutical wholesale market reflects the substantial scale-based cost advantages held by the largest players.