Cardinal Health - Speculation Has Created The Ultimate Buying Opportunity For This Dividend Aristocrat

Summary

• Cardinal Health has a footprint that spans 24,000 pharmacies, 85% of U.S. Hospitals and 2 million home patients.
• Amazon is looking to compete in the arena of medical equipment but has chosen to avoid pharmaceutical drugs. For now.
• Cardinal Health is similar to Wal-Mart in that they are well-positioned to withstand and combat Amazon's attempts for business.
• The medical segment accounts for approximately 10% of Cardinal's revenues but around 20% of profits. Amazon represents the biggest threat to this part of the business.

Investment Thesis

In the same way that Amazon (AMZN) has threatened the survival of "brick-and-mortar" retailers, it has also begun to challenge long-standing businesses that for years seemed impervious to outside challengers. After all, in order to challenge a medical behemoth like Cardinal Health (NYSE:CAH) it would require deep industry knowledge and adequate size.

The real question is whether or not Amazon poses a legitimate threat to companies like Cardinal Health, McKesson (MCK), and AmerisourceBergen (ABC). The remainder of this article will be focused on the potential impact from Amazon entering the arena of medical distribution services and whether or not the current drop in share price for players like Cardinal Health, McKesson, AmerisourceBergen warrant consideration as a strong investment.

ABC data by YCharts

Background

Major players in the pharmaceutical products and medical device distribution business have suffered tremendously over the course of the last six months. The three companies being reviewed were previously considered stalwarts in the medical products and services field and have established a wide moat that prevents competitors from challenging their reign.

As you can see from the chart above, Cardinal Health has been disproportionately impacted by recent events, causing the share price to break from the same pattern as MCK and ABC. The FY2017 picture doesn't look any better as Cardinal Health now sits near its 52-week-low or approximately 34% below its 52-week-high. Due to the massive decline in CAH's price over the last year, I believe that it presents the strongest upside as most of the risk has been priced in.

CAH data by YCharts

The big question is what events are driving the disparity in CAH's share price relative to MCK and ABC? Are there more problems facing CAH or is this a classic example of the market overreacting?

Events Impacting All Three

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CAH over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article reflects my own personal views and is not meant to be taken as investment advice. It is recommended that you do your own research. This article was written on my own and does not reflect the views or opinions of my employer. I do not currently own shares of CAH, but I may choose to establish a position in the next 72 hours.