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Why Cardinal Health Is Not The Top Pick In The Medical Distribution Segment

Daniel Schönberger profile picture
Daniel Schönberger


  • Cardinal Health is a medical distributor with two business segments - pharmaceutical and medical.
  • Despite a wide economic moat, Cardinal Health could increase revenue only 4% annually over the last decade.
  • Cardinal Health is facing a few risks like the ongoing discussion about extreme healthcare costs or the opioid epidemic.
  • The stock is just fairly valued currently, but investors can at least count on annual dividend increases as the company is on its path to becoming a dividend aristocrat.

Cardinal Health (NYSE: NYSE:CAH) is a global, integrated healthcare services and products company. It is providing customized solutions for hospitals as well as healthcare systems, pharmacies and ambulatory surgery centers and physician offices worldwide although most of its $130 billion in revenue is generated in the United States. Cardinal Health is also a company that seemed to be left out in the stock market rally of the last few years - very similar to other companies operating as medical distributors. While McKesson Corporation (NYSE: MCK) lost 35% in value over the last three years and Owens & Minor Inc. (NYSE: OMI) lost even more than 50% in the same time frame, Cardinal Health declined only 22% since March 2015 and therefore outperformed a few of its peers. But compared to the broader US stock market, the company underperformed extremely as the S&P 500 gained 27% in the same time frame.

After we already analyzed McKesson as undervalued medical distributor and Owens & Minor as good pick for income investors due to its high dividend yield, we now take a closer look at Cardinal Health.

Mixed Picture

If we look at Cardinal Health over the last ten years, we can state that revenue is in an upward trend (grew about 4.3% annually), but earnings per share didn't really increase over the last decade and were very volatile (as high as $4.32 in 2016 and as low as $0.97 in 2013). Especially the net income margin declined over the last years and led to a stagnating net income despite revenue growth. In 2013 and 2014 revenue declined drastically (for a company that big), but since then revenue as well as earnings per share seem to be back on the right track to growth.

Cardinal Health has divided its

This article was written by

Daniel Schönberger profile picture
My analysis is focused on high-quality companies, that can outperform the market over the long-run due to a competitive advantage (economic moat) and high levels of defensibility. Focused on European and North American companies, but without constraints regarding market capitalization (from large cap to small cap companies).My academic background is in sociology and I hold a Master’s Degree in Sociology (with main emphasis on organizational and economic sociology) and a Bachelor’s Degree in Sociology and History.I also write about wide economic moats in my Substack: https://stockmarket101.substack.comI also write about investing, economy and similar topics on Medium: https://medium.com/@danielschonberger

Analyst’s Disclosure: I am/we are long TGT, SRCL. 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.

If not stated otherwise, all charts are my own work based on numbers from Morningstar and Cardinal Health's SEC filings.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (9)

08 Mar. 2018
I liked the article, thanks for the insight. However, I have been analysing Cardinal Health for quite a while. Not only I do believe it is the best pick among the top distributors but I believe is way better than McKesson. I would love to further discuss this, but TL;DR:

1. McKesson Management is under pressure from its own shareholders who literally asked him to decrease its pay rate.
2. Numbers are incredibly similar for both McKesson and Cardinal Health. The only difference is the stock price. Cardinal is more efficient in terms of margins except for the Pre-Tax Margin.
3. It is inconclusive
4. Medtronics, Cordis, a mgmt. that have been 27 years in the same company and that knows the industry. Have you even studied the firm?
5. If Amazon cuts fat in the industry, it will attack McKesson and AmerisourceBergen first undoubtedly. ABC is close to being in ashes. McKesson has not the strategic acquisitions in motion to defend itself.
6. I have not seen you talk about the joint venture between CAH and Rite Aid to negotiate generics and which gives them an incredibly advantageous position.

All in all, you might want to rethink a little bit your analysis.

jvincen2 profile picture
"Joint venture between CAH and Rite Aid"

Huh ? I'm a long time holder of CAH and can only suggest that you also might want to spend some time looking at CAH a little harder too.
Simple misprint ? perhaps you mean the long term agreement JV of CAH and CVS Caremark involving generics ?
09 Mar. 2018
Excuse me, yes, I mean CVS and CAH
Owens and Minor... HA!
This article just doesn't have enough data to draw the conclusion it does draw.

So, why is McKesson the better choice? No justification given in this article. Also, no comparison to Becton Dickinson, which is another option.

I come away with just a wishy-washy feeling.

tdanzig profile picture
The medical device acquisition from Medtronics should start to bear fruit soon which will help with earnings growth. Did not see that mentioned in the article.
jvincen2 profile picture
<<< Additionally, the company provides supply chain services and solutions to different hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers. >>>

That is a large part of their moat against the perceived AMZN threat. It's not just a drop and run service they provide to all of those places and a big reason behind why they are in so many of them to begin with.
CAH has already gained back quite a bit of lost ground you could say from some of the problems discussed and I remain confident nothing insurmountable for them is lurking out there. Thanks for the article and view on them.
Long CAH and I plan to stay that way for now.
DowntoEarththinking.com profile picture
DOJ has stated they are enjoining many states with their law suits against CAH and others for criminal drug offenses. A serious downside is not far away for the three that are in the most jeopardy and are in fact already caught in many illegal acts. Time tells all things and this was no different
I believe it’s Pat DorsEy
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