CAH - Cardinal Health: Growing Into The Valuation
2024-07-02 08:05:45 ET
Summary
- Cardinal Health is a market leader in healthcare with stable revenue streams and growth opportunities, despite being potentially overvalued.
- Recent performance shows solid revenue and profit growth, but valuation metrics suggest potential overvaluation compared to sector averages.
- Growth drivers include expansion in specialty pharmaceuticals, biosimilars market, and emerging healthcare segments, with a focus on operational efficiency and customer value propositions.
- Cardinal Health is key to my “Healthy Dividends” portfolio due to market leadership, strong growth, ability to deliver shareholder value.
Cardinal Health ( CAH ) is a longstanding member of my “Healthy Dividends” portfolio thanks to the company’s market leadership, diversified portfolio, and stable revenue streams, supported by economies of scale and growth opportunities. In addition, the company has a long track record of financial performance and respectable dividend payments that have allowed that position to marinate over the years. For me, I have never doubted Cardinal’s growth outlook due to their ability to negotiate favorable terms with manufacturers, while also passing the costs onto the customers if need be. This has allowed Cardinal to become a juggernaut in the healthcare sector, and the ticker’s performance reflects that, with CAH climbing over 125% over the past five years. Although I am bullish on Cardinal’s long-term prospects, the ticker can be argued to be overvalued based on its high price-to-earnings GAAP ratio of 46.54, significantly above the sector median of 32.05, and its elevated PEG GAAP (TTM) ratio of 1.71 compared to the sector median of 0.99. Additionally, the company's negative growth in free cash flow and operating cash flow do raise concerns. However, I believe Cardinal has plenty of growth drivers to justify its current valuation despite the risks in the market....
Cardinal Health: Growing Into The Valuation