Cardinal Health, Inc. (NYSE:CAH)

CAPS Rating: 5 out of 5

The Company is a provider of products and services that improve the safety and productivity of healthcare.

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Member Avatar TMFWillSommers (98.22) Submitted: 8/6/2015 5:27:25 PM : Outperform Start Price: $85.00 CAH Score: +2.21

Description, including why customers select this company over competitors

Cardinal Health is the third largest pharmaceutical distributor in the United States, and it is the largest supplier to CVS retail pharmacies. McKesson, AmerisourceBergen, and Cardinal Health generated sales of $183b, $128b, and $98b last year, and together they distributed 90% of drugs sold via retail pharmacies in the United States. It’s an oligopoly. Distribution is dependent on scale efficiencies in warehousing, delivery, purchasing, logistics, etc… Cardinal Health is one of three companies that has the size and scale to compete.

Why is this a good investment?

1. Demographic trends. Medical spending should continue to grow faster than the overall economy for many years. The U.S. population is aging, government programs are extending medical coverage, and pharmaceutical companies are regularly cranking out new medicines and treatments. Growth will be slow, but steady over many years for the industry (i.e. 2x GDP or 5-6% annually).
2. Strong competitive position. Distributing pills requires efficiently requires route density, enough warehouses, competitive supplier pricing, customer negotiating power, etc… It’s an issue of scale. And that’s why the industry is an oligopoly that will likely persist. It would be very difficult for a new entrant to compete, and customers (CVS, Walgreens, Express Scripts, etc) have an incentive to support a competitive marketplace that contains at least three suppliers. I’d be surprised if this industry was any different in a decade.
3. Steady business. Spending on prescriptions is economically insensitive, and Cardinal Health’s sales won’t decline precipitously during a recession. Its debt load (less than 1x EBITDA) is small, and most of its costs are variable. Add-in its wide-moat, economic insensitivity, and you’ve got a very “robust” business.

Where will winning take the market cap in 5 years?

Market cap today is $28 billion with about $1 billion in net debt. Over the past year, the company produced $2.2 billion in free cash flow. I’d expect free cash flow to increase organically by 5-6% per year with minimal cap-ex, and acquisitions should add about 2-3% to free cash flow. At today’s multiple, that would result in a market cap of about $41 billion (an 8% 5-yr CAGR) in 2020. However, the company also pays a 1.6% dividend and regularly repurchases shares. I’d expect that would push shareholder return up to about 10-12% per year. That’s a slight market-beater, but with less risk.

What probability do I give the company's chance at winning?

70%. Not much is required to win -- the biggest obstacle to is poor capital allocation. Management has recently been moving into medical devices distribution and manufacturing. I’m skeptical of that plan.

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Member Avatar Staka (96.19) Submitted: 2/14/2015 1:06:47 PM : Outperform Start Price: $85.39 CAH Score: +2.33

Positive:
- Defensive blue chip
- Good long-term uptrend with low vola
- Obamacare driven health spending expansion gives them a lot of tailwind

Negative:
- Expensive, but this can be safely ignored in this FED driven market

Strategy: BVn

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Member Avatar TMFHelical (98.98) Submitted: 9/4/2014 10:44:33 AM : Outperform Start Price: $37.56 CAH Score: +57.63

Should benefit from the expansion of health services since this is a play based on volumes.

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Member Avatar Dividends500 (83.96) Submitted: 5/16/2014 4:26:24 PM : Outperform Start Price: $66.53 CAH Score: +17.95

Dividends500 tracks the 200 strongest dividends in the S&P 500. To qualify as a strong dividend, the company must meet two simple requirements:

- A payout ratio below 50%
- An increasing dividend from the prior year

Because there are more than 200 dividend paying companies in the S&P 500 that meet these requirements, the qualifying companies with the largest dividend yields were chosen.

Dividends500 intends to test this FactSet article, which highlights these strong dividend paying companies and their outperformance versus the S&P 500 as a whole (Page 12).

http://www.factset.com/websitefiles/PDFs/dividend/dividend_12.16.13

If you have questions or see something you think is inaccurate feel free to let me know.

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Member Avatar jasar13 (< 20) Submitted: 3/19/2014 6:22:34 AM : Outperform Start Price: $71.44 CAH Score: +10.22

Strong Healthcare company with decent dividend set to profit from an aging population.

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Member Avatar Heels10 (< 20) Submitted: 1/4/2014 12:40:49 PM : Outperform Start Price: $65.11 CAH Score: +18.93

Consistent dividend increases and capital opportunities from partnership with CVS/Caremark

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Member Avatar afewgoodstocks11 (21.35) Submitted: 12/30/2013 11:33:33 AM : Outperform Start Price: $36.96 CAH Score: +76.99

Div. (Yield) $1.21 (1.8%)
Current Yield . . . . . . .3.18%

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Member Avatar TerryHoodSr (77.37) Submitted: 7/31/2013 3:46:45 PM : Outperform Start Price: $75.17 CAH Score: +3.02

steady

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Member Avatar 2trpop (92.59) Submitted: 6/18/2012 11:22:01 AM : Outperform Start Price: $39.48 CAH Score: +60.99

Long-Term Hold

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Member Avatar mkklaren1968 (30.21) Submitted: 10/6/2011 12:18:37 AM : Outperform Start Price: $36.82 CAH Score: +50.94

Great P/E and P/S, 2% dividend yield. Strong company with a strong future ahead.

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Member Avatar jahartmu (95.69) Submitted: 8/4/2011 11:13:05 AM : Outperform Start Price: $37.82 CAH Score: +57.54

Betting on an Ohio company that's also a leader in the medical industry. Cardinal should be well-positioned regardless of what happens to Washington's push for socialized medicine.

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Member Avatar XMFConnor (98.29) Submitted: 6/6/2011 5:52:47 PM : Outperform Start Price: $40.34 CAH Score: +51.79

Einhorn Play

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Member Avatar edremjo (61.74) Submitted: 7/19/2010 9:21:25 PM : Outperform Start Price: $31.18 CAH Score: +77.38

yes

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Member Avatar dashark44 (93.73) Submitted: 7/16/2010 1:22:18 PM : Outperform Start Price: $31.57 CAH Score: +76.23

Dividend will keep this solid.

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Member Avatar musclemilk13 (99.46) Submitted: 4/12/2010 3:36:05 PM : Outperform Start Price: $32.02 CAH Score: +91.88

4/12 screen #2: percentile and CS

speculating with new screen, high analyst opinion

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Member Avatar havoc315 (95.62) Submitted: 4/12/2010 2:01:17 PM : Outperform Start Price: $31.98 CAH Score: +92.26

A winner from the health care reform

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Member Avatar dnblack (58.33) Submitted: 3/5/2010 12:54:36 PM : Outperform Start Price: $31.39 CAH Score: +88.55

This is not a screaming deal but with the dividend factored in it looks like they should be priced between $42 and $50. EPS growth is around 3.5% for the past 8 years (with moderate variance), revenue growth is more consistent and around 9.5%.

Their net margin is low, debt is average, return on assets is high.

They compete directly with AmerisourceBergen and McKesson; all three seem to be quality companies with similar performance potential.

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Member Avatar larryknows (56.01) Submitted: 3/4/2010 5:19:25 PM : Outperform Start Price: $31.35 CAH Score: +88.10

Recession proof niche.

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Member Avatar nmartinov (31.62) Submitted: 1/30/2010 2:05:02 PM : Outperform Start Price: $29.40 CAH Score: +97.13

Long term buy

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Member Avatar alars79 (28.30) Submitted: 1/21/2010 11:43:58 AM : Outperform Start Price: $28.24 CAH Score: +114.93

New filibuster-proof Congress should reduce the risk of any sweeping health care changes in the near future. Their focus on growing generics would help them remain competitive regardless. Solid ROE, good work being done to increase focus on core competancies, and pharmaceuticals should continue to have recession- and inflation-resistant demand.

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