Zacks_Analysts' Blog : Earnings Scorecard: Cardinal - Analyst Blog

Cardinal Health (CAH) reported first-quarter fiscal 2011 (ended September 30) adjusted (excluding one-time expenses) earnings per share from continuing operations of 73 cents, exceeding the Zacks Consensus Estimate of 72 cents as well as the year-ago figure of 66 cents.

Earnings from continuing operations (as reported) dropped about 19% year over year to $237.1 million (or 68 cents a share) reflecting a previous-year gain (of 21 cents) from the sale of CareFusion (CFN) shares.

Highlights from the First Quarter

Sales for the first quarter rose 10% year over year to $26.8 billion, exceeding the Zacks Consensus Estimate of $26.3 billion. Sales were boosted by growth across the board, notably, buoyancy in the larger Pharmaceutical segment.

The Pharmaceutical segment posted sales of $24.4 billion in the quarter, a 10% year-over-year hike. Acquisitions contributed to growth as did organic growth from pre-existing clients.

Sales from the smaller Medical segment climbed 10% year over year to $2.4 billion in the quarter, driven by higher sales to existing and net new clients and change in the company’s distribution model with CareFusion.

We have discussed the quarterly results at length here: Cardinal Narrowly Beats in 1Q

Agreement – Estimate Revisions

The overall trend in estimate revisions for fiscal 2012 is heavily inclined on the positive side following the release of the first quarter results. Out of the 15 analysts covering the stock, 7 raised their estimates over the past month while there was only 1 downward revision. There was no movement in the preceding 7 days.  

Similarly, for fiscal 2013, 6 analysts (out of 15) raised their estimates, while there were three downward revisions, over the past month. There was again no movement in the prior week. 

Magnitude – Consensus Estimate Trend

Directional agreement, for the most part, has led to an increase of a penny each in the forecast for 2012 and 2013, during the last 30 days. The current Zacks Consensus Estimate for 2012 is $3.18, reflecting an estimated 19.20% year-over-year growth.     

Cardinal Stays at Neutral

Looking ahead, Cardinal reiterated adjusted earnings per share from continuing operations guidance between $3.04 and $3.19 for fiscal 2012. The forecast excludes 14 cents of amortization of acquisition-related intangible assets.

Cardinal remains one of the largest distributors of pharmaceuticals and medical supplies in the U.S., with a diversified product portfolio, which may partly insulate it from the current economic uncertainty.

However, the company faces tough competition across all its business segments, which may continue to pressure pricing and margins. Its major competitors in the pharmaceutical supply chain segment include McKesson Corp. (MCK) and AmerisourceBergen Corp. (ABC).

Moreover, the company’s Medical segment remains affected by higher commodity prices. We currently have a long-term Outperform rating on Cardinal supported by a short-term Zacks #2 Rank (Buy).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.