Cardinal Health may have finally fallen enough that it's now within a price range that makes it attractive for me to own. It's a company that's been on the list of Dividend Aristocrats for a number of years, but the Dividend Growth Investors seem to enjoy accumulating the stock and pushing the P/E ratio way too high and out of bounds for an investor like me. But that may have recently changed. And now I'm getting anxious to add it to my accounts.
Cardinal Health, Inc. operates as a healthcare services and products company worldwide. The company operates in two segments, Pharmaceutical and Medical. The Pharmaceutical segment distributes branded and generic pharmaceutical, over-the-counter healthcare, specialty pharmaceutical, and consumer products to retailers, including chain and independent drug stores and pharmacy departments of supermarkets and mass merchandisers; hospitals; and other healthcare providers. This segment offers distribution, inventory management, data reporting, new product launch support, and contract pricing and chargeback administration services to pharmaceutical manufacturers; operates nuclear pharmacies and cyclotron facilities that manufacture, prepare, and deliver radiopharmaceuticals for use in nuclear imaging and other procedures in hospitals and physician offices; provides pharmacy operations, medication therapy management, and patient outcomes services to hospitals and other healthcare providers; and offers logistics, marketing, and other services. This segment also provides various consulting, patient support, and other services to pharmaceutical manufacturers, third-party payors, and healthcare providers. The Medical segment distributes a range of medical, surgical, and laboratory products to hospitals, ambulatory surgery centers, clinical laboratories, and other healthcare providers; and offers supply chain services, including spend, distribution, and inventory management services to healthcare providers. This segment also develops, manufactures, and sources a line of medical and surgical products comprising surgical drapes, and gowns and apparel; exam and surgical gloves; fluid suction and collection systems; and cardiovascular, wound care, and orthopedic products directly or through third-party distributors, as well as assembles and offers sterile and non-sterile procedure kits. Cardinal Health, Inc. was founded in 1979 and is headquartered in Dublin, Ohio.
(Summary) (Company) (Chart)
| 11 May 2016 Price $76.96 1yr Target $92.20 Analysts 15 Dividend $1.80 Payout Ratio 42.95% 1yr Cap Gain 19.80% Yield 2.33% 1yr Tot Return 22.13% P/E 18.75 PEG 1.86 Beta 0.59 | EPS (ttm) $4.19 EPS next yr $5.76 EPS next 5yr 10.10% 1yr Price Support $58.17 Market Cap $26.13 Bil Revenues $117.71 Bil Earnings $1.39 Bil Profit Margin 1.18% Quick Ratio 0.60 Current Ratio 1.10 Debt/Equity 0.83 | 1yr RevGR 12.56% 3yr RevGR -1.57% 5yr RevGR 0.80% 1yr EarnGR 7.10% 3yr EarnGR 5.70% 5yr EarnGR 15.38% 1yr DivGR 13.12% 3yr DivGR 16.83% 5yr DivGR 14.38% ROA 4.30% ROE 21.20% |
Cardinal Health (CAH) declares $0.4489/share quarterly dividend, 16% increase from prior dividend of $0.387. Forward yield 2.34% Payable July 15; for shareholders of record July 1; ex-div June 29.
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Operations
Cardinal Health Inc is a healthcare services and products company that improves the cost-effectiveness of health care. Their Pharmaceutical Segment helps pharmacies, hospitals, and other healthcare providers focus on patient care while reducing costs, enhancing efficiency and improving quality. Their Medical Segment provides medical products to patients in the home.
Pharmaceutical Segment
In the United States, Cardinal Health's Pharmaceutical segment
- distributes branded and generic pharmaceutical, over-the-counter healthcare and consumer products through its Pharmaceutical Distribution division to retailers (including chain and independent drug stores and pharmacy departments of supermarkets and mass merchandisers), hospitals and other healthcare providers. This division:
- maintains prime vendor relationships that streamline the purchasing process resulting in greater efficiency and lower costs for our customers;
- renders services to pharmaceutical manufacturers including distribution, inventory management, data reporting, new product launch support, and contract pricing and chargeback administration;
- provides pharmacy operations, medication therapy management and patient outcomes services to hospitals and other healthcare providers; and
- manufactures and repackages generic pharmaceuticals and over-the-counter healthcare products;
- operates nuclear pharmacies and cyclotron facilities through its Nuclear Pharmacy Services division that manufacture, prepare and deliver radiopharmaceuticals for use in nuclear imaging and other procedures in hospitals and physician offices; and
- distributes specialty pharmaceutical products; provides services to pharmaceutical manufacturers, third-party payors and healthcare providers supporting the development, marketing, distribution and payment for specialty pharmaceutical products; and provides specialty pharmacy services through its Specialty Solutions division.
Pharmaceutical Distribution
The Pharmaceutical Distribution division generates gross margin when the aggregate selling price to the customers exceeds the aggregate cost of products sold. Gross margin includes margin from the generic pharmaceutical program, margin from the pharmaceutical distribution agreements with branded manufacturers and margin from over-the-counter healthcare and consumer products. It also includes cash discounts. Margin from the generic pharmaceutical program includes price discounts and rebates from manufacturers and may include price appreciation on some products. Earnings on generic pharmaceuticals are generally highest during the period immediately following the initial launch of a generic product because generic pharmaceutical selling prices are generally highest during that period and tend to decline over time. Margin from pharmaceutical distribution agreements with branded manufacturers refers primarily to fees we receive for rendering a range of distribution and related services to manufacturers and also includes benefits from pharmaceutical price appreciation.
Sourcing Venture With CVS Health
In July 2014, the company established Red Oak Sourcing, a U.S.-based generic pharmaceutical sourcing venture with CVS Health with an initial term of 10 years. Both companies have contributed sourcing and supply chain expertise to the 50/50 venture and have committed to source generic pharmaceuticals through arrangements negotiated by the venture. Red Oak Sourcing negotiates generic pharmaceutical supply contracts on behalf of both companies.
Specialty Pharmaceutical Products and Services
Products and services offered by the company's Specialty Solutions division is referred to as “specialty pharmaceutical products and services.” The Specialty Solutions division distributes oncology, rheumatology, urology, nephrology and other pharmaceutical products ("specialty pharmaceutical products") and human-derived plasma products to hospitals, dialysis clinics, physician offices and other healthcare providers; provides consulting, patient support, logistics and other services to pharmaceutical manufacturers, third-party payors and healthcare providers primarily supporting the development, marketing, distribution and payment for specialty pharmaceutical products; and provides specialty pharmacy services.
Medical Segment
The company's Medical segment distributes a broad range of national brand and the company's own Cardinal Health brand medical, surgical and laboratory products and provides services to hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers in the US, Canada and China and to patients in the home in the US through the company's Cardinal Health at Home division. During fiscal 2015, Cardinal Health entered into an agreement with Henry Schein, Inc. to consolidate the company's physician office organization into Henry Schein, Inc. as part of a broader commercial relationship.
The Medical segment also manufactures, sources and develops higher-margin Cardinal Health brand medical and surgical products. Manufactured products include: single-use surgical drapes, gowns and apparel; exam and surgical gloves; fluid suction and collection systems; cardiovascular products; wound care products; and orthopedic products. The company expects to expand this segment's product line to include the cardiac and endovascular products manufactured by Cordis once the acquisition of Cordis is completed.
The Medical segment also assembles and offers sterile and non-sterile procedure kits. In addition, the segment provides supply chain services, including spend management, distribution management and inventory management services, to healthcare providers.
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My Perspective
Dividend Growth Investors need little introduction to Cardinal Health. It's a favorite on the list of Dividend Aristocrats but, like many of the companies on the list, it's often very expensive. The recent fall has brought the P/E ratio down to its current level of 18. It's below 20 so it pops up on my displays but it's not as low as it's average P/E of 16. But by simply looking at next year's estimated earnings and comparing it to today's price and the P/E is a more reasonable 13.36 and that would be considered historically inexpensive. But that assumes that the company will actually produce earnings of $5.76. However, if it does, and the P/E settles in to its average level (16.5), that calculates out to a projected stock price of $95.04 per share. And that's an increase of 23.49% over the next 13 months compared to its current price. That a very nice return. Add in a dividend yield of 2.33% that's growing in the mid-teens and any investor can see that this could be a very nice stock to own.
I expect to start a position in this company very soon while the current stock price is depressed. I don't think that will last long because the Dividend Growth Investors won't let it stay down for long.
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