Cardinal Health Inc (CAH, Financial) has recently experienced a daily gain of 1.02%, complemented by a notable 3-month gain of 17.35%. With an Earnings Per Share (EPS) of $0.61, investors are keen to understand: is the stock modestly overvalued? This valuation analysis aims to answer this question, diving deep into the financials, market position, and future prospects of Cardinal Health (CAH).
Cardinal Health Inc (CAH, Financial) is a prominent force in the U.S. pharmaceutical wholesale industry, playing a critical role alongside Cencora and McKesson, with the trio dominating over 90% of the market. The company's expertise spans sourcing and distributing branded, generic, and specialty pharmaceutical products to a diverse clientele, including retail chains, independent pharmacies, hospitals, and healthcare providers. Cardinal Health also extends its reach globally, supplying medical-surgical products and equipment across North America, Europe, and Asia. At the heart of our analysis is the comparison between Cardinal Health's current stock price of $100.8 and the GF Value, an estimation of its fair value, which stands at $89.51.
Understanding the GF Value of Cardinal Health
The GF Value is a unique measure that reflects the intrinsic value of Cardinal Health (CAH, Financial), calculated through a blend of historical trading multiples, an adjustment factor based on the company's past performance, and projected future business outcomes. It suggests an ideal fair trading value for the stock, providing investors with a benchmark for comparison. When the stock price significantly exceeds the GF Value Line, it suggests overvaluation, potentially leading to subpar future returns. Conversely, a price well below the line may indicate undervaluation and the prospect of higher returns.
With a market cap of $24.80 billion, Cardinal Health appears modestly overvalued according to GuruFocus' valuation method. This suggests that the long-term return of its stock could be less than the company's business growth. The following chart illustrates the GF Value of Cardinal Health, offering a visual representation of the stock's valuation status.
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Financial Strength of Cardinal Health
Investors must scrutinize a company's financial strength to avoid potential capital loss. Cardinal Health's cash-to-debt ratio of 0.82 places it above 53.76% of its peers in the Medical Distribution industry. This favorable ratio has earned Cardinal Health a financial strength rating of 7 out of 10, indicating a fair balance sheet.
Profitability and Growth Prospects
Cardinal Health's consistent profitability over the last decade underscores its reduced risk profile. However, its operating margin of 0.92% is lower than 75.79% of its industry counterparts, which may raise concerns about its performance potential. Despite this, the company's profitability is considered strong, with revenues reaching $210.20 billion over the past year.
Growth is a pivotal factor in valuation, and Cardinal Health's 3-year average annual revenue growth of 14.5% is commendable, outperforming 76.74% of the Medical Distribution industry. Nevertheless, its EBITDA growth rate over the same period is 0%, a figure that requires careful consideration by investors.
ROIC vs. WACC: Measuring Cardinal Health's Profitability
Comparing Return on Invested Capital (ROIC) with Weighted Average Cost of Capital (WACC) provides insight into Cardinal Health's cash flow generation in relation to its invested capital. Ideally, ROIC should exceed WACC to indicate efficient capital utilization. Cardinal Health's ROIC of 5.82 is currently lower than its WACC of 6.59, suggesting a potential area for improvement.
Conclusion: Assessing Cardinal Health's Valuation
Overall, Cardinal Health (CAH, Financial) exhibits signs of being modestly overvalued. The company maintains a fair financial condition and strong profitability, yet its growth compares less favorably within the Medical Distribution industry. For a more comprehensive understanding of Cardinal Health's financials, interested parties can explore its 30-Year Financials here.
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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.
