Cardinal Health Inc (CAH, Financial) recently reported a daily loss of 0.72% and an 8.2% gain over the last three months. With an Earnings Per Share (EPS) of 0.99, the question arises: is the stock fairly valued? This article offers a comprehensive valuation analysis of Cardinal Health (CAH). Let's dive in!
Company Overview
Cardinal Health is a leading pharmaceutical wholesaler in the U.S., distributing branded, generic, and specialty pharmaceutical products to a wide range of customers. Along with AmerisourceBergen and McKesson, Cardinal Health dominates over 90% of the U.S. pharmaceutical wholesale industry. The company also supplies medical-surgical products and equipment to healthcare facilities across North America, Europe, and Asia. With a current share price of $89.09, Cardinal Health (CAH, Financial) has a market cap of $22.30 billion. Its GF Value, a unique estimate of fair value, stands at $82.38.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It's based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the stock's ideal fair trading value. If a stock's price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our valuation method, Cardinal Health is fairly valued. The stock's current price, $89.09 per share, is in line with its GF Value, indicating that the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing its shares. Looking at Cardinal Health's cash-to-debt ratio of 0.86, which ranks better than 52.94% of 85 companies in the Medical Distribution industry, we can conclude that the company has a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Cardinal Health has been profitable for 8 of the past 10 years. With a revenue of $205 billion over the past twelve months and an Earnings Per Share (EPS) of $0.99, its operating margin is 0.86%, ranking worse than 77.01% of 87 companies in the Medical Distribution industry. Overall, Cardinal Health's profitability is fair.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Cardinal Health's 3-year average annual revenue growth rate is 14.5%, which ranks better than 78.75% of 80 companies in the Medical Distribution industry. However, its 3-year average EBITDA growth rate is 0%, ranking worse than 0% of 68 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can provide insight into its profitability. If the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Cardinal Health's ROIC is 6.78, and its WACC is 6.89.
Conclusion
In conclusion, the stock of Cardinal Health is estimated to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 0% of 68 companies in the Medical Distribution industry. To learn more about Cardinal Health stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
