Zacks_Analysts' Blog : Cardinal to Outperform - Analyst Blog

We reiterate our Outperform rating on Cardinal Health (CAH). Its first-quarter fiscal 2012 (ended September 30) adjusted earnings per share of 73 cents beat the Zacks Consensus Estimate of 72 cents. Earnings from continuing operations (as reported) dropped about 19% year over year reflecting a previous-year gain from the sale of CareFusion (CFN) shares.

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.

Revenues from the Pharmaceutical segment spiked 10% year over year in the quarter. Acquisitions contributed to growth as did organic growth from pre-existing clients. Sales from the smaller Medical segment climbed 10%, driven by higher sales to existing and net new clients and change in the company’s distribution model with CareFusion.

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.

The company nevertheless 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.

Cardinal currently holds a Zacks #3 Rank, which translates into a short-term “Hold” recommendation.