Earnings Scorecard: Cardinal Health (CAH)

Cardinal Health (CAH), one of the largest distributors of pharmaceuticals and medical supplies, recently reported earnings for fourth-quarter of fiscal year 2010, which beat the Zacks Consensus Estimate by a penny.

Revenues grew by a mere 0.5% year over year to $22.3 billion. Pharmaceutical revenues were essentially flat year over year as higher sales to non-bulk customers were offset by lower bulk customer revenues. On a positive note, the company’s generic pharmaceutical business posted a 10% revenue growth in the quarter.

The spin-off of CareFusion (CFN) has enabled Cardinal to increase focus on its core healthcare supply chain business. Moreover, Cardinal recently acquired privately held specialty pharmaceutical services company Healthcare Solutions Holding for $667 million. The acquisition has expanded its foothold in the fast-growing specialty pharmaceutical services segment.

We have discussed the quarterly results at length here: Cardinal Health Beats by 1 Cent

Agreement – Estimate Revisions

Estimates for fiscal year 2011 (ending June 2011) have predominantly moved upward since the release of the fourth quarter fiscal 2010 results. Out of the 15 analysts covering the stock, 8 have lifted their estimates while 3 moved in the opposite direction in the past 30 days with 7 instances of upward movements and only 3 cases of downward drift.

Magnitude – Consensus Estimate Trend

Movement in estimates did not translate into significant changes in the forecast for 2011. There was no impact from estimate changes over the past week. The effect was muted with a minor decline of a penny over the past 30 days. The current Zacks Consensus Estimate for 2011 is $2.44, indicating a 9.9% year-over-year growth.

Cardinal Retained at Neutral

Cardinal is one of the largest global healthcare companies that help pharmacies, hospitals and ambulatory care sites to focus on low-cost patient care. Its diversified product portfolio is a natural hedge against the risk of revenue shortfall in a volatile economy.

The company is facing intense competition in all its business segments, which may put pressure on pricing. Its major competitors in the pharmaceutical supply chain segment are McKesson Corp. (MCK) and AmerisourceBergen Corp. (ABC). Cardinal is experiencing margin pressure in its pharmaceutical business, in part, due to competition. Moreover, a slowdown in certain sales channels (such as hospital and physician office channels) due to lower customer demand is also a concern. Client concentration remains another area of concern.

Nevertheless, Cardinal remains committed to boosting shareholder returns leveraging a solid cash flow as it continues share repurchases and pays incremental dividends. Moreover, the company has lifted its earnings guidance for fiscal 2011 assuming several large customer contract renewals and improvement in generic revenues.

CARDINAL HEALTH (CAH): Free Stock Analysis Report

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