Cardinal Health Inc (CAH, Financial) recently experienced a daily loss of -1.94%, yet it boasts a 3-month gain of 11.3%. With an Earnings Per Share (EPS) of $0.61, investors are left pondering whether the stock is modestly overvalued. This article delves into the valuation analysis of Cardinal Health (CAH), inviting readers to explore the financial intricacies that determine its market position.
Company Introduction
Cardinal Health Inc stands as a titan in the U.S. pharmaceutical wholesale industry, sourcing and distributing an extensive range of pharmaceutical products. Alongside Cencora and McKesson, Cardinal Health dominates over 90% of the industry. The company also has a significant presence in the medical-surgical products and equipment sector, serving healthcare facilities across North America, Europe, and Asia. When juxtaposed with the GF Value of $88.17, Cardinal Health's current stock price of $102.9 suggests a potential overvaluation, prompting a closer examination of its intrinsic value.
Summarize GF Value
The GF Value is a proprietary measure that reflects the true value of a stock, including Cardinal Health (CAH, Financial). It is meticulously calculated based on historical trading multiples, a GuruFocus adjustment factor for past performance, and projected future business success. The GF Value Line serves as a benchmark, suggesting the fair trading value of the stock. A stock price significantly above this line may indicate an overvalued status and potentially lower future returns, while a price below may signal undervaluation and the prospect of higher returns. At present, Cardinal Health's stock price suggests it is modestly overvalued, which could imply a subdued long-term return compared to its business growth.
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Financial Strength
An essential aspect of investment decision-making is the financial strength of a company. Cardinal Health's cash-to-debt ratio of 0.82 is more robust than over half of its industry peers. With a financial strength rating of 7 out of 10, the company's fiscal health is deemed fair. This assessment is crucial as investing in financially robust companies reduces the risk of permanent loss.
Profitability and Growth
Cardinal Health's track record of profitability is impressive, with profits reported in 8 out of the past 10 years. Despite a large revenue of $210.20 billion and an Earnings Per Share (EPS) of $0.61, its operating margin of 0.92% is modest within its sector. The company's profitability rank of 7 out of 10 reflects a fair standing in the market. In terms of growth, Cardinal Health's average annual revenue growth outperforms a majority of its industry, although its 3-year average EBITDA growth does not follow this trend, positioning it lower in the industry.
ROIC vs WACC
Comparing Cardinal Health's Return on Invested Capital (ROIC) of 5.82 with its Weighted Average Cost of Capital (WACC) of 7.4 reveals that the company is not earning enough to cover its capital costs, a situation that is less than ideal for investors. This discrepancy is further illustrated in the historical comparison of the company's ROIC and WACC.
Conclusion
In conclusion, Cardinal Health (CAH, Financial) appears to be modestly overvalued based on its current market price and GF Value. While the company maintains a fair financial condition and profitability, its growth metrics lag behind some competitors within the Medical Distribution industry. For a comprehensive understanding of Cardinal Health's financial health, interested parties are encouraged to review its 30-Year Financials.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
