Company Information

Cardinal Health is an American multinational healthcare company, focusing primarily on the distribution of hospital-grade products, pharmaceuticals, and other medical products. One of the largest American companies by revenue, the company has revenues in excess of $150 billion, and more than 50,000 employees.

Executive Summary

Investment Thesis: 

Cardinal Health presents an attractive investment opportunity because it has a history of consistent investor returns, pharmaceutical and manufacturing innovation, and a proven ability to deliver results in turbulent times. Through the sales of medical supplies, healthcare-related technology, hospital and healthcare equipment, and drug distribution, Cardinal Health has established itself as a time-tested supplier of essential, non-replaceable goods. 

Throughout the current pandemic the company has demonstrated its skill in rapidly shifting manufacturing to in-demand goods, allowing it to keep up with rapidly changing consumer demand, ensuring maximum profits. Those profits have been reflected in its earnings, which have outpaced the rest of the healthcare industry. In addition, the increasing investments in speciality care show potential for increased future earnings, supported by the core business of selling trusted healthcare products.

Investment Merits: 

Increased elective surgeries- Analysts anticipate an earnings increase as surgeries increase in volume. Cardinal expects profit growth to improve to more than 8% next year as the economy recovers from the pandemic, thus restoring a primary source of revenue in 2021 and beyond.

Innovation in HIMSS- Third highest cause of death in the U.S. is medical error. Automated supply chain infrastructure at the point of care can proactively identify risk of adverse events for clinicians and intervene appropriately to help reduce error.

Sustainable Financials- Cardinal Health anticipates earnings to improve by 5.4% over the next five years. Cardinal currently pays a dividend yield of 3.7%. P/E ratio of 9.1x. It has underperformed against S&P 500 growth average, and returning products after Covid will revive growth rate.

Diversified product portfolio-  Cardinal Health’s Pharmaceutical sector is the second-largest pharmaceutical distributor in the U.S. This company offers a range of products such as pharmaceutical distribution methods, manufacturer and specialty solutions, and nuclear and pharmacy offerings.

Investment Risks: 

High volume of company debt- Past years of losses have increased debt by borrowing money for dividend payments to shareholders. This is not sustainable and escalates debt share. The company has nearly $6.76B in debt.

Opioid crisis in America-  The Centers for Disease Control and Prevention estimates that the total "economic burden" of prescription opioid misuse alone in the United States is $78.5 billion a year, including the costs of healthcare, lost productivity, addiction treatment, and criminal justice involvement. Cardinal Health faces the possibility of fines and other economic sanctions as a result.

Reccomendation:

Recommend Buying 50-100 shares, holding for 1 year