Why Is Cardinal (CAH) Down 12% Since Last Earnings Report?

It has been about a month since the last earnings report for Cardinal Health (NYSE:CAH). Shares have lost about 12% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cardinal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cardinal Health Q2 Earnings & Revenues Top Estimates

Cardinal Health, Inc. reported second-quarter fiscal 2020 adjusted earnings of $1.52 per share, which surpassed the Zacks Consensus Estimate of $1.21 by 25.6%. Further, the reported figure improved 17.8% year over year.

Revenues increased 5.3% on a year-over-year basis to $39.74 billion. The figure also beat the Zacks Consensus Estimate by 0.6%.

Segmental Analysis

Pharmaceutical Segment

In the fiscal second quarter, pharmaceutical revenues improved 5.9% to $35.71 billion on a year-over-year basis. The upside can be attributed to sales growth from Pharmaceutical Distribution and Specialty Solutions customers.

Pharmaceutical witnessed an improvement of 4.3% in profits to $462 million owing to positive performance in the company’s generics program and Specialty Solutions business. However, an adverse impact of Pharmaceutical Distribution customer contract renewals partially offset the upside.

Medical Segment

In the quarter under review, revenues at this segment rose 0.4% to $4.02 billion on account of growth in Cardinal Health at Home. However, decline in products and distribution partially negated the upside.

Medical segment profit improved 3.7% to $195 million owing to benefits from cost savings initiatives. However, a decline in products and distribution partially offset the upside.

Margin Analysis

Gross profit dipped 0.9% year over year to $1.74 billion.

As a percentage of revenues, gross margin in the reported quarter was 4.3%, down 30 basis points (bps) on a year-over-year basis.

Distribution, selling, general and administrative expenses totaled $1.16 billion, up 9.3% year over year. Adjusted operating income totaled $646 million, up 1.4% from the year-ago quarter.

The company reported operating income of $3.34 billion in the quarter under review, down 33.7% from the year-ago quarter. As a percentage of revenues, operating margin in the reported quarter was 0.8%, down 50 bps on a year-over-year basis.

Financial Update

As of Dec 31, 2019, cash and cash equivalents amounted to $1.21 billion, up 36.9% sequentially.

Cumulative cash from operating activities totaled $697 million at end of the fiscal second quarter, compared with $372 million in the year-ago quarter.

2020 Guidance Raised

The company has raised fiscal 2020 adjusted earnings per share, which will now range between $5.20 and $5.40 (up from the previously guided range of $4.85-$5.10). The Zacks Consensus Estimate is pegged at $5.06 per share.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months.

VGM Scores

Currently, Cardinal has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Cardinal has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.