Cardinal Health: No Longer the Bargain It Once Was

Includes: ABC, CAH, MCK, OMI
by: New Low Observer
Since our write-up on Cardinal Health (NYSE:CAH) on September 29, 2009, the stock has appreciated 23%. Purchasing the stock on 9/30/09 for $26.80 and selling it today for $33 would yield an annualized return of 57%. This excludes two dividend payments.
Let's review the numbers. The table below shows the previous article's fundamentals compared to today's figures.
Date P/B F P/E Cash Flow Yield
9/29/2009 1.11 12.00 6.00 2.60%
2/23/2010 2.33 13.81 8.70 2.10%
As you can see, the valuation improved quite a bit given that nothing substantially materialized, other than the company raising its profit outlook. Looking at the figures above, you can see that the price-to-book (P/B) ratio has more than doubled. This occurred because of the 2nd quarter results.
Because of the recent changes, (CAH) is no longer the bargain we saw back in September 2009 when it was trading as if they didn't have any intangible assets. Remember, I stated that, "given that all CAH competitors - Amerisourcebergen (NYSE:ABC), McKesson (NYSE:MCK) and Owens & Minor (NYSE:OMI) - are trading at more than 2.3x book value, CAH is deeply discounted at 1.1." Now that CAH appears to be fully valued, I have to urge investors to search for safer alternatives.
A 23% profit may not seem like much, however it is a big accomplishment given that the stock was held for nearly 5 months. Remember, we are only interested in "seeking fair profits." We at New Low Observer, feel that the risk/reward is no longer in our favor and would rather take 23% in 147 days.
Disclosure: No positions

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