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Stock Strategist

Cardinal's a Critical Link in the Pharma Supply Chain

Its core operations will be needed no matter how market dynamics shift.

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We believe  Cardinal Health (CAH) plays a critical role in the healthcare market, and as a result, it possesses a wide economic moat. The drug distributor is able to turn its significant size and market share into key competitive advantages. Cardinal is an important cog in the pharmaceutical industry, as many supply-chain participants depend on its services for streamlined product distribution and procurement. We expect the use of pharmaceuticals to increase over the next several years, which should provide a solid platform for Cardinal’s continued success.

Cardinal is the third-largest pharmaceutical distributor by revenue and is the main supplier to CVS Health’s retail pharmacy network. The company also supplies several large provider group purchasing organizations and mass retailers. The razor-thin profitability of these contracts and the enormous amount of capital needed to build a top-tier global drug wholesaling/distribution operation have formed a solid competitive foundation for Cardinal that has largely kept new entrants at bay.

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.