What the Wall Street Journal Doesn't Tell You About Cardinal Health (CAH) Stock

Shares of Cardinal Health (CAH) slid -0.6 % during today's afternoon session, which brings their 52 week performance to 50.7%. The Market Inference outlook on this stock is that it is fairly valued at today's price of $78.16. But we also believe that a value analysis should be complemented by an overview of the company's poor growth indicators and mixed market sentiment.

Cardinal Health, Inc. operates as an integrated healthcare services and products company in the United States, Canada, Europe, Asia, and internationally. The large-cap Healthcare company has 46,500 full time employees and is based in Dublin, United States.

CAH Has a Higher P/E Ratio Than the Sector Average

Compared to the Healthcare sector's average of 13.21, Cardinal Health has a trailing twelve month price to earnings (P/E) ratio of -23.1 and an expected P/E ratio of 12.5. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-3.38 or forward earnings per share of $6.26.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Cardinal Health's P/E ratio is higher than its sector average of 13.21, we can deduce that the market is overvaluing the company's earnings.

CAH Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Cardinal Health's P/B ratio of None is higher than its sector average of 4.07, such a margin of safety does not exist for the stock.

CAH Is Generating Cash

Cardinal Health has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 8.2%, compared to 5.9% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 9.7% and a coefficient of variability of 22.6%:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2022-06-30 3,122 -387 2,735 34.8
2021-06-30 2,429 -400 2,029 28.01
2020-06-30 1,960 -375 1,585 -33.79
2019-06-30 2,722 -328 2,394 n/a

Cardinal Health Is a Narrowly Profitable Business

If you are looking to make CAH a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Cardinal Health is run.

Cardinal Health's Gross Margins

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2022-06-30 181,364 174,819 3.61 -13.43
2021-06-30 162,467 155,689 4.17 -7.13
2020-06-30 152,922 146,054 4.49 -4.47
2019-06-30 145,534 138,700 4.7 n/a

Cardinal Health's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2022-06-30 181,364 4,881 0.92 -16.36
2021-06-30 162,467 4,984 1.1 -5.17
2020-06-30 152,922 5,096 1.16 -2.52
2019-06-30 145,534 5,101 1.19 n/a

Cardinal Health's cost of revenue is growing at a rate of 12.5% in contrast to -1.5% for operating expenses. Sales revenues, on the other hand, have experienced a 7.7% growth rate. As a result, the average gross margins growth is -8.3 and the average operating margins growth rate is -8.0, with coefficients of variability of 11.2% and 11.1% respectively.

We See Mixed Market Signals Regarding CAH

Cardinal Health has an average rating of hold and target prices ranging from $90 to $72. At its current price of $78.16, the company is trading -3.51% away from its target price of $81. 3.6% of the company's shares are linked to short positions, and 92.7% of the shares are owned by institutional investors.

Holder Shares Date Reported Percentage Value
Vanguard Group, Inc. (The) 32,151,569 2022-09-29 12% $2,512,966,750
Blackrock Inc. 28,680,859 2022-09-29 11% $2,241,696,044
State Street Corporation 20,311,765 2022-09-29 8% $1,587,567,626
Price (T.Rowe) Associates Inc 8,202,026 2022-09-29 3% $641,070,382
FMR, LLC 8,039,409 2022-09-29 3% $628,360,236
Amundi 5,525,058 2022-09-29 2% $431,838,553
Geode Capital Management, LLC 5,447,039 2022-09-29 2% $425,740,588
Invesco Ltd. 5,164,878 2022-09-29 2% $403,686,883
Bank Of New York Mellon Corporation 4,720,900 2022-09-29 2% $368,985,561
Morgan Stanley 4,432,517 2022-09-29 2% $346,445,544
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.