Cardinal Health, Inc. (CAH): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Cardinal Health topped the Zacks Consensus Estimate by a penny despite a 15.8% fall in fiscal-2014 third quarter earnings due to a 12.7% decline in revenues to $21,427 million. The company's performance in the Pharmaceutical segment was disappointing as its revenues ebbed 15.0% due to the expiration of the contract with Walgreens Co. However, the problem of client and supplier concentration and reliance on group purchasing organizations is partly mitigated through long-term contracts. The company's leverage position has also improved. As such, we downgrade our recommendation to Neutral from Outperform and set a target price of $74.00.

Overview:

Cardinal Health, Inc. (CAH), headquartered in Dublin, OH, is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. It enables pharmacies, hospitals, and ambulatory care sites to focus on patient care while reducing costs and enhancing efficiency and quality. As one of the largest global health care companies, Cardinal Health is an important link in the health care supply chain. It provides pharmaceuticals and medical products to more than 40,000 locations daily. It is also a leading manufacturer of medical and surgical products, including gloves, surgical apparel, and fluid management products. In addition, Cardinal Health supports the growing diagnostic industry by supplying medical products to clinical labs and operating a large network of radiopharmacies that dispense products to aid in the early diagnosis of disease. Cardinal Health has two reporting segments Pharmaceutical and Medical.

The Pharmaceutical segment (accounted for 88% of revenues in the first nine months of fiscal 2014): It is the second largest pharmaceutical distributor in the U.S. and the largest nuclear pharmacy. Its products and services include pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services. In China, the segment operates as Cardinal Health China, which supplies branded, generic and specialty pharmaceuticals and provides logistics, marketing and other services. This segment also offers "specialty pharmaceutical products and services", which supplies (1) oncology, rheumatology, urology and other pharmaceutical products to physician offices (2) human plasma products and specialty pharmaceutical products to hospitals and other healthcare providers (3) consulting and other services to pharmaceutical manufacturers, third party payors and healthcare providers. These apart the specialty business operates as a specialty pharmacy.

The Medical segment (12%): The segment manufactures products such as single-use surgical drapes, gowns and apparel exam and surgical gloves and fluid suction and collection systems and offers sterile and non-sterile procedure kits. These products are sold directly or distributed via third-party sources in the U.S., Canada, Europe, South America and the Asia/Pacific.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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