Cardinal Health Inc (CAH, Financial) recently experienced a daily loss of 3.95%, aligning with a three-month downturn of 3.97%. Despite these fluctuations, the company's Earnings Per Share (EPS) stands at 2.25. Investors and analysts alike may ponder: is Cardinal Health fairly valued at its current market price? This analysis delves into the valuation of Cardinal Health, urging investors to consider the detailed insights that follow.
Company Overview
Cardinal Health, a major player in the pharmaceutical wholesale industry, operates alongside Cencora and McKesson, collectively covering over 90% of the U.S. market. The company not only distributes pharmaceuticals to a variety of healthcare providers but also supplies medical-surgical products across North America, Europe, and Asia. With a current stock price of $98.91 and a market cap of $24.10 billion, understanding Cardinal Health's intrinsic value is crucial for investors. The GF Value, calculated at $97.36, suggests that the stock is fairly valued. This valuation serves as a cornerstone for a deeper exploration of Cardinal Health's financial and market position.
Understanding GF Value
The GF Value is a proprietary measure indicating the intrinsic value of a stock, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Cardinal Health, the GF Value suggests the stock is trading close to its fair value. This assessment is pivotal for investors considering long-term investment, as it indicates that the stock price should, theoretically, oscillate around this value, assuming market conditions remain stable.
Financial Strength and Stability
Cardinal Health's financial robustness is critical to its ability to weather economic downturns. With a financial strength rating of 7 out of 10, the company shows a fair capacity to manage its debts and financial obligations, evidenced by a cash-to-debt ratio of 0.97. This ratio places Cardinal Health better than 52.58% of its peers in the Medical Distribution industry, indicating a relatively strong balance sheet.
Profitability and Growth Prospects
Cardinal Health has maintained profitability over the past decade, a reassuring sign for potential investors. The company's operating margin of 0.94% may seem modest, yet it reflects certain industry-wide challenges. Notably, the company's 3-year average annual revenue growth rate of 14.5% is commendable, surpassing 77.53% of competitors. However, its EBITDA growth rate has stalled, presenting a mixed growth outlook that requires careful investor consideration.
ROIC vs. WACC: A Critical Indicator of Value Creation
Evaluating Cardinal Health's value creation, the comparison between its Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is pivotal. With an ROIC of 11.37% against a WACC of 6.89%, the company effectively generates value well above its cost of capital, underscoring its financial efficacy in generating shareholder value.
Conclusion
In conclusion, Cardinal Health appears to be fairly valued at its current market price, considering its financial stability, profitability, and growth metrics. While the company faces challenges, its ability to create value above its capital costs suggests a potentially stable investment. For a more detailed financial overview, investors are encouraged to review Cardinal Health's 30-Year Financials.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
