Cardinal Health Inc (CAH, Financial), a leading pharmaceutical wholesaler, experienced a daily loss of 1.68%, and a 3-month loss of 5.23% as of September 27, 2023. Despite these losses, the company reported an Earnings Per Share (EPS) (EPS) of 0.99. Is the stock fairly valued at its current price? This article aims to answer this question through a comprehensive valuation analysis. Keep reading to unveil the true worth of Cardinal Health (CAH).
Introduction to Cardinal Health
Cardinal Health is one of the three leading pharmaceutical wholesalers in the U.S., primarily engaged in sourcing and distributing branded, generic, and specialty pharmaceutical products. The company supplies its products to various pharmacies, hospital networks, and healthcare providers. Along with Cencora and McKesson, Cardinal Health comprises over 90% of the U.S. pharmaceutical wholesale industry. The company also supplies medical-surgical products and equipment to healthcare facilities in North America, Europe, and Asia.
With a current stock price of $87.18 and a GF Value of $83.2, Cardinal Health appears to be fairly valued. The following analysis delves deeper into the company's value, combining financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the intrinsic value of a stock, derived from GuruFocus's proprietary method. This method considers three factors: historical trading multiples, an adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus's valuation, Cardinal Health (CAH, Financial) appears to be fairly valued, with a market cap of $21.90 billion. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Cardinal Health's Financial Strength
Before investing in a company, it's essential to assess its financial strength. Investing in companies with poor financial strength increases the risk of permanent loss. Cardinal Health's cash-to-debt ratio of 0.86, which is worse than 51.16% of 86 companies in the Medical Distribution industry, indicates fair financial strength. The company's overall financial strength is rated 7 out of 10.
Profitability and Growth of Cardinal Health
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Cardinal Health's profitability is ranked 7 out of 10, indicating fair profitability. The company has been profitable 8 out of the past 10 years, with a revenue of $205 billion and an EPS of $0.99 over the past twelve months. However, its operating margin of 0.86% ranks worse than 78.89% of 90 companies in the Medical Distribution industry.
Growth is a crucial factor in the valuation of a company. Cardinal Health's average annual revenue growth is 14.5%, which ranks better than 78.05% of 82 companies in the Medical Distribution industry. However, its 3-year average EBITDA growth is 0%, which ranks worse than 0% of 69 companies in the Medical Distribution industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Cardinal Health's ROIC was 6.78, while its WACC came in at 7.63.
Conclusion
In conclusion, the stock of Cardinal Health (CAH, Financial) 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 69 companies in the Medical Distribution industry. To learn more about Cardinal Health stock, you can check out its 30-Year Financials here.
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