Cardinal Health Inc.CAH

Morningstar Rating

Stock Research and Analysis

by Matthew Coffina

Cardinal Health's customer relationships and established distribution infrastructure provide notable scale advantages. However, we think consolidation among retail pharmacies and the rise of pharmacy benefit managers will gradually erode the value of Read more

Bulls Say

Demographic changes, innovation, and economic factors make health care a high-growth industry. Cardinal will benefit from the growing share of gross domestic product that is directed toward health-care spending.

Drug and medical supplies distribution is a natural oligopoly. Economies of scale deter new entrants.

Following the CareFusion spin-off, Cardinal's management can focus all of its attention on the core distribution business. The company is also free to return most cash flow to shareholders.

Distributors are well positioned for health-care reform, as they are likely to benefit from increased volume without being exposed to significant reimbursement pressure. Read more

Bears Say

Combined, CVS and Walgreen accounted for more than 40% of Cardinal's revenue last year. The loss of either customer could be a big hit to earnings, given the company's relatively fixed cost structure.

Cardinal could experience significant dissynergies as it breaks into two companies, as it has lost cross-selling opportunities and now requires extra administrative overhead.

It's not clear that giant PBMs and retail chains really need Cardinal. At a minimum, Cardinal will have to offer its services at a very compelling price to prevent these customers from bringing procurement and distribution activities in house.

Industry dynamics are working against Cardinal, as independent pharmacies continue to lose market share, and pharmaceutical manufacturers are in a consolidation phase. Read more

Strategy

Following the CareFusion spin-off, we expect Cardinal to be focused on maintaining its distribution business while returning most cash flow to shareholders. Read more

Management

We think Cardinal Health's stewardship is fair. The company is led by George Barrett, who has 25 years of health-care industry experience, most recently as CEO of Teva Pharmaceutical's TEVA North American operation. Barrett joined Cardinal in January Read more

Profile

Cardinal Health is a leading distributor of pharmaceuticals and medical supplies to pharmacies and hospitals. Its operations include procurement, packaging, inventory management, Read more

First Name

Last Name

Email Address

Zip Code

Create Password

Verify Password

(6-15 characters; case sensitive)

What is your occupation or job title?

Select...

Your registration indicates agreement to the terms of use.

Daily Dividend Report: NWS, GLW, MA, AFL, CAH
Watch more