Cardinal Health Earnings: Resilient Demand, Strategic Acquisitions Help Slightly Exceed Expectations

Narrow-moat Cardinal Health reported solid third-quarter earnings that came in a touch higher than our expectations. Total sales of $54.9 billion were flat year over year, but up 19% when adjusted for the Optum contract loss. Prescription demand and utilization trends remain resilient despite challenging macro conditions, and the firm also touted its operational excellence. GLP-1s (diabetes and weight-loss) continue to play a key role and contributed to over one third of growth. Solid performance also flowed downward, with all three segments achieving double-digit profit growth and margin expansion on both annual and sequential bases. On mergers and acquisitions, the recent acquisitions of ION and GIA lifted the bottom line, and we are pleased to see Cardinal’s strategic investments in higher-margin areas paying off. Cardinal raised full-year earnings per share guidance to $0.18 at the midpoint, or about 2.2%. This is the third time management raised guidance during the fiscal year, and we are impressed with strong momentum with no signs of slowing. After raising our near-term assumptions and giving Cardinal a bit more credit on margin expansion, we raised our fair value estimate to $125 per share from $116.