Cardinal Health Earnings: Optum Loss Doesn't Stop a Strong Result

Narrow-moat Cardinal Health started fiscal 2025 on strong footing, reporting healthy first-quarter numbers above our expectations. Total sales were down 5% year over year but up 15% after excluding the impact of the lost Optum Rx contract, with GLP-1 metabolic drugs contributing 5 percentage points of growth. Cardinal also delivered solid margin expansion, with adjusted EBIT and earnings per share growing 12% and 9%, respectively, despite the major customer loss. We think the firm has effectively managed the challenges of this transition and started to leverage a more simplified business. Against the backdrop of solid results, Cardinal inched up sales and profit guidance for the distribution segment and also its EPS outlook to $7.82 at the midpoint, up $0.20 from previous expectations. After bumping up our near-term estimates, we have raised our fair value estimate to $107 per share from $102.