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Cardinal Health (NYSE:CAH) is slated to report fourth-quarter and fiscal 2011 results on Thursday, August 4. The current Zacks Consensus Estimate for the fourth quarter is 58 cents, representing an estimated 16.82% year-over-year hike.

Third Quarter Recap

Total revenues were $26.1 billion in the reported quarter, up about 7% year over year, beating the Zacks Consensus Estimate of $25.6 billion.

The Pharmaceutical segment reported third-quarter revenues of $23.8 billion, up approximately 7% year over year, including substantial contribution from prior acquisitions. The business experienced a 21% increase in sales to non-bulk customers. Revenues from the company’s Source generic program jumped 32%.

Revenues from the Medical segment were $2.23 billion in the third quarter, up 5%, due to higher sales to pre-existing clients, particularly in the Lab and Ambulatory channels.

Estimate Revision Trend


Estimates for the fourth quarter have been largely stagnant. Out of a total of 17 analysts covering the stock, one changed his/her estimate over the last 7 days (in the upward direction) while three changed his/her estimates over the past 30 days, of whom two were in the upward direction and one in the downward direction.

With regard to estimates for fiscal 2011, no analyst (out of 17) raised or lowered his/her estimate over the past week. There were two positive revisions during the past month. The current Zacks Consensus Estimate for fiscal 2011 is $2.67, representing an estimated 20.08% year-over-year increase.


The magnitude of estimate revision for the fourth quarter, as well as fiscal 2011, has been static over the prior week. There was an increase of a penny in the estimate for the current fiscal over the past month.

Cardinal has generated positive surprises in each of the previous four quarters and we believe the same trend may continue. The company produced an average positive earnings surprise of 11.15% over the prior four quarters, meaning that it beat the Zacks Consensus Estimate by that measure.

Our Take

Cardinal’s generic business demonstrates continued signs of strength. Growth in this business continues to surpass the market growth rate. Cardinal expects its generic franchise to gain further momentum in 2012.

However, the company faces tough competition across all its business segments, which may continue to pressure pricing and margins. Its major competitors in the pharmaceutical supply chain segment include McKesson Corp. (NYSE:MCK) and AmerisourceBergen Corp. (NYSE:ABC).

We are also concerned about the extremely low margins in the company’s bulk pharmaceutical business. However, the shift in customer mix toward the non-bulk segment of the distribution business may gradually help drive margin expansion from the depressed levels at this point in time. We are currently Neutral on Cardinal Health.