CEO Kerry Clark revived Cardinal Health (CAH) by shedding money-losing drug manufacturing businesses and settling an accounting scandal. He streamlined operations, set new corporate performance metrics and focused on money-making drug distribution and medical supply/technology businesses. Heightened hospital safety trends have benefited sales of Cardinal's CMP division products like automated drug dispensers, thereby growing earnings 20% annually. Clark expects CMP to contribute 40% of overall sales by 2010. Cardinal's revenues grew 9% to $87 billion in F2007 and EPS rose 20% to $3.42. Cardinal's 2008 earnings growth forecast of 15.5% should yield $3.95-$4.15/share. The company raised dividends last quarter to $0.12 from $0.09/share and has announced its latest $2B share buyback plan. Going forward, Clark sees 12%-16% annual EPS growth. He expects to use 50% of operating cash for dividends and 25% for acquisitions. Issues like losing market share to drug chains, slower prescription growth and general uncertainty over U.S. healthcare as election year approaches weigh upon the $22B company. But growth continues and shares are priced as if it barely does. Cardinal's 13 P/E of $62 is similar to rival AmeriSourceBergen's 13.1 P/E, but lower than McKesson's 15.8. A 16 P/E would raise shares to $74. Deutsche Bank sees a $90 share—a 45% gain.
Sources: Barron's Commentary: Cardinal Health: Litigation, Sale and Acquisition Leave 2007 EPS Unchanged • Multiple Symptoms of Excessive Pay at Cardinal Health • Cardinal Health: Waiting for an Entry Point Stocks/ETFs to watch: Cardinal Health (CAH), AmeriSourceBergen (ABC), McKesson (MCK) Conference call transcripts: Cardinal Health F4Q07 (Qtr End 6/30/07) Earnings Call Transcript