Cardinal Health Inc. (CAH – Analyst Report) reported second-quarter fiscal 2016 adjusted earnings of $1.30 per share, which beat the Zacks Consensus Estimate by a nickel and increased 8.3% on a year-over-year basis.

Quarter Details

Revenues jumped up 23% year over year to $31.45 billion, well above the Zacks Consensus Estimate of $29.20 billion. The growth was driven by strong performance by both the Pharmaceutical and Medical segments.

Pharmaceutical revenues surged 25% to $28.29 billion, while revenues from the Medical segment increased 8.5% to $3.16 billion. The year-over-year improvement at the Medical segment was driven by higher contribution from acquisitions and growth in the Cardinal Health at Home platform.

Adjusted gross margin expanded 500 basis points (bps) on a year-over-year basis to 13%.

Distribution, selling, general and administrative (SG&A) expenses increased 13% on a year-over-year basis to $922 million in the reported quarter.

Adjusted operating margin expanded 400 bps on a year-over-year basis to 14%.

Pharmaceutical segment profits in the quarter increased 16% to $627 million owing to net growth from existing and new customers, and contribution from acquisitions.

Medical segment profit decreased 8% to $106 million, including the impact of the Cordis-related inventory fair value step-up.

Guidance

Cardinal Health reiterated its fiscal 2016 adjusted earnings guidance range at $5.15–$5.35 per share, reflecting 18%–22% growth from fiscal 2015.

Our Take

Cardinal Health is banking on acquisitions, strategic buyouts, joint ventures and supply agreements to drive growth. We believe that the Red Oak sourcing venture with CVS Health (CVS – Analyst Report) and partnerships with Henry Schein (HSIC – Analyst Report) and Bayer Healthcare present significant growth opportunities.

Furthermore, we believe that growth in new and existing customer count as well as consistent stock repurchases will boost earnings.

Zacks Rank & Other Stocks to Consider

Currently, Cardinal Health carries a Zacks Rank #2 (Buy).

STAAR Surgical (STAA – Snapshot Report) is another favorably ranked stock in the industry with a Zacks Rank #1 (Strong Buy).

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