CAH - Cardinal Health: Solid Business But Overvalued

2024-04-18 06:09:05 ET

Summary

• Cardinal Health is overvalued, with a dividend yield lower than its historical average and a high P/E ratio.
• Growth projections for the Company are moderate, with a projected growth rate of 7.8% for the next 5 years.
• Return projections using the discounted dividend model suggest that CAH is still overvalued, with a fair price of around $79 compared to its current price of $106.

CAH is overvalued

Cardinal Health (CAH) caught our attention recently when we were screening for stocks with yields noticeably outside their normal range. And CAH really caught our attention because its dividend yield is currently way out of its historical range. As you can clearly see from the charts below, its current yield of 1.88% is among the lowest levels in at least 5 years. It is lower than its 5-year average yield of 3.25% by a whopping 42%, implying substantial overvaluation. Other valuation metrics such as P/E paint the same picture. As seen in the second chart below, at its current price of $106 as of this writing, it is trading at a TTM P/E of 15.7x, about 1/3 above its 5-year average....

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