Can Sustained Product Demand Drive CAH Stock Before Q3 Earnings?

Cardinal Health, Inc. CAH is scheduled to report third-quarter fiscal 2025 results on May 1, before market open.

In the last reported quarter, the company’s adjusted earnings per share (EPS) of $1.93 surpassed the Zacks Consensus Estimate by 10.3%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on all occasions, delivering an earnings surprise of 9.6%, on average. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

Let’s check out the factors that have shaped CAH’s performance prior to this announcement.

Factors to Note Before CAH Reports

Pharmaceutical and Specialty Solutions

In December 2024, Cardinal Health completed its acquisition of Integrated Oncology Network (ION). As part of the transaction, ION practices will be integrated into Navista, CAH’s oncology practice alliance and ION practice management and practice growth services will become part of Navista’s advanced services and technology offering.

In November, Cardinal Health entered into definitive agreements to acquire two companies that were expected to accelerate its strategic growth areas and enhance patient care. It had planned to acquire a majority stake in GI Alliance (GIA), a renowned gastroenterology management services organization and the Advanced Diabetes Supply Group, a well-known diabetic medical supplies provider (both across the United States). CAH announced the completion of its acquisition of a majority stake in GIA in January, thereby accelerating its multi-specialty growth strategy.

The acquisitions of ION and GIA are expected to have boosted its Pharmaceutical and Specialty Solutions segment during the third quarter of fiscal 2025. However, the extent of the impacts is likely to be realized to a greater extent at the end of the fiscal year, as evident by Cardinal Health’s updated outlook for the segment.

On its second-quarter fiscal 2025 earnings call in January, Cardinal Health’s management confirmed that the company has been witnessing strong pharmaceutical demand across its brand, specialty, consumer health and generics businesses and from its largest customers. This trend is likely to have continued in the fiscal third quarter, thereby driving up the segmental revenues.

However, the impact of the customer contract expiration is likely to have continued to weigh on the segment’s overall revenues.

The Zacks model estimates the segment’s revenues in the fiscal third quarter to be $49.41 billion, down 2.4% year over year.

Other Factors Likely to Affect Cardinal Health

In December 2024, CAH’s Nuclear and Precision Health Solutions business of the broader Other segment announced the start of weekly production of actinium-225 (Ac-225) through its Center for Theranostics Advancement in Indianapolis, IN, in collaboration with TerraPower Isotopes. The routine production was expected to increase the commercial availability of Ac-225 for the manufacturing of investigational therapeutic drug products and provide for the future commercial manufacturing of novel therapies that will help advance patient care.

In November, Cardinal Health's Global Medical Products and Distribution business announced the U.S. launch of its Kendall SCD SmartFlow Compression System, the next generation of the Kendall Compression Series, offering an enhanced clinician and patient experience. These product availabilities are likely to have boosted sales at the respective segments during the fiscal third quarter, thereby driving revenues.

However, the current unstable macroeconomic business environment and tariff uncertainties are likely to have weighed on the company’s fiscal third-quarter revenues, raising our apprehension.

Cardinal Health, Inc. Price and EPS Surprise

Cardinal Health, Inc. price-eps-surprise | Cardinal Health, Inc. Quote

CAH’s Estimate Picture

For third-quarter fiscal 2025, the Zacks Consensus Estimate for revenues is pegged at $55.03 billion, implying an improvement of 0.2% from the prior-year quarter’s reported figure.

The consensus estimate for EPS is pegged at $2.15, indicating an increase of 3.4% from the prior-year period’s reported number.

What Our Model Suggests About Cardinal Health

Our proven model predicts an earnings beat for CAH this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Cardinal Health has an Earnings ESP of +0.54%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

CAH’s Share Price Performance

Over the past three months, Cardinal Health’s shares have gained 8.3%, outperforming the Medical - Dental Supplies’ 7.6% decline. CAH’s shares also outperformed the Zacks Medical sector and the S&P 500’s decreases of 8.6% and 9.5%, respectively.

Three Months Price Comparison

Cardinal Health’s peers like Becton Dickinson and Company BDX, popularly known as BD, Align Technology, Inc. ALGN and Henry Schein, Inc. HSIC have all underperformed the company. BDX, ALGN and HSIC’s shares are down 17.5%, 22.1% and 18.1%, respectively, in the same time frame.

Cardinal Health’s Key Valuation Metric

From a valuation standpoint, CAH’s forward 12-month price-to-earnings (P/E) is 15.7X, a discount to the industry's average of 16.7X.

The company is trading at a premium to its peers, BD and Henry Schein. However, Cardinal Health is trading at a discount to its other peer, Align Technology. BD and Henry Schein’s P/E currently stand at 13.5X and 13.2X, respectively, while the ratio for Align Technology stands at 17.8X.

This suggests that investors may be paying a lower price relative to the company's expected sales growth.

CAH’s Long-Term Investment Visibility

This January, Cardinal Health announced construction is underway for its new at-Home Solutions distribution center in Fort Worth, TX. The facility is equipped with leading robotics and automation technologies and is anticipated to be fully operational in the summer of 2025. This looks promising for the company’s future distribution chain.

In October 2024, Cardinal Health announced the opening of its new distribution center in Boylston, MA, supporting its U.S. Medical Products and Distribution business. It was likely to increase the U.S. warehouse capacity and expand specialized handling capabilities since its expected availability in early 2025. This also looks promising for the stock, as management believes that the location will strengthen CAH’s supply chain resiliency and provide a more predictable, timely and stable experience for its New England customers and their growing needs.

Our Final Take

There is no denying that Cardinal Health sits favorably in terms of core business strength, earnings prowess, robust financial footing and global opportunities. The stock’s strong core growth prospects are a good reason for existing investors to retain shares for potential future gains.

For those exploring to make new additions to their portfolios, the valuation indicates expectations of superior performance compared with its industry and sector peers. As it is still valued lower than the broader market, it suggests potential room for growth if it can align more closely with overall market performance. As there are chances of beating estimates, it would be a wise choice to add the stock to one’s portfolio before the earnings. However, if investors are already holding the stock, it would be prudent to hold on to it at present.

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This article originally published on Zacks Investment Research (zacks.com).

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