Cardinal Health stock (NYSE: CAH) has seen a significant 36% rise this year, outperforming the broader S&P500 index, which is down 15%. However, in the longer term, CAH stock, with 14% returns from levels seen in late 2017, has underperformed the S&P 500 index, up 52%. After the sharp rise for Cardinal, we believe it is fully priced now, as discussed below.
This 14% rise for CAH stock since late 2017 can primarily be attributed to 1. Cardinal Health’s revenue rising 33% to $181 billion over the last twelve months, compared to $137 billion in 2017, 2. a 6% fall in its total shares outstanding to 294 million, partly offset by 3. a 7% decline in the company’s P/S ratio to 0.1x trailing revenues currently. The rise in revenue and a decrease in shares outstanding has meant that Cardinal’s revenue per share rose 41% to $618 over the last twelve months, vs. $438 in 2017. Our dashboard on Why Cardinal Health Stock Moved has more details.
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Cardinal’s sales growth over the recent years has been driven by its pharmaceutical distribution business, while its medical segment has seen tepid growth. Cardinal is the second largest pharmaceutical distributor in the U.S. It has been eying acquisitions to enhance its service offerings. However, its investments in medical segments haven’t been very fruitful and weighed on the company’s bottom line growth. Cardinal’s operating margins have declined to -0.3% currently, compared to 1.6% in 2019, before the pandemic. Our Cardinal Health Operating Income Comparison dashboard has more details.
Of late, CAH stock has been in the limelight after activist investor firm Elliott Management Corp confirmed a large position in the company, and Cardinal has agreed to appoint four director nominees to its board. Investors are hoping for value unlocking, and it has sent CAH share price soaring over the last couple of months. However, given the sharp rally in CAH stock, we believe the positives are now priced in. We estimate Cardinal Health’s valuation to be $68, in line with the current market price of $70.
While CAH stock looks fully priced, it is helpful to see how Cardinal Health’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Phibro Animal Health vs. Tri Pointe Homes.
|S&P 500 Return||3%||-15%||82%|
|Trefis Multi-Strategy Portfolio||5%||-12%||250%|
 Month-to-date and year-to-date as of 9/12/2022
 Cumulative total returns since the end of 2016