Cardinal Health beat Q4 EPS estimates and guided fiscal 2027 adjusted EPS to $12.40-$12.60, above the $12.04 Street view. Shares hit a record close Tuesday.
Cardinal Health beat fourth-quarter profit estimates and guided fiscal 2027 adjusted earnings above Wall Street's forecast, sending shares to a record close Tuesday.
Revenue for the fiscal 2026 fourth quarter ended June 30 rose nearly 6% from a year earlier to $63.67 billion, missing the $65.03 billion LSEG consensus. Adjusted earnings per share came in at $2.60, ahead of the $2.42 estimate compiled by LSEG. The adjusted EPS number excludes a 31-cent benefit from tariff refunds paid by the U.S. government after the Supreme Court struck down the Trump administration's 'liberation day' duties.
The stock climbed more than 1% to a record close and touched an intraday high of $258.30 before fading. The prior intraday peak was $244.01, set Aug. 6. Before Tuesday, the all-time closing high was $239.71, set July 7. The CNBC Investing Club attributed the fade to profit-taking after the stock reached all-time intraday highs.
The CNBC Investing Club, which holds Cardinal in Jim Cramer's Charitable Trust, raised its price target to $265 from $245 and kept its 2 rating, equivalent to hold. The club said it would look for a better entry point before upgrading the stock.
For fiscal 2027, which began in July, Cardinal expects adjusted EPS of $12.40 to $12.60, or growth of 13% to 15%. The Street was at $12.04, according to LSEG. The company sees free cash flow of $3.5 billion to $4 billion, above the $3.49 billion FactSet consensus. The club said the outlook implies earnings growth above Cardinal's long-term guidance range.
Cardinal has moved beyond its legacy drug and supply distribution business into specialty pharmaceuticals and direct-to-patient delivery. Distribution to hospitals and retail pharmacies still matters to the financials. The newer lines carry higher margins, and the mix showed up in the June quarter. Cardinal also owns managed services organizations that handle the business side of medical practices, built partly through acquisitions. Strong execution and operating efficiency drove the quarter, the club said.
The largest operating segment, Pharmaceutical and Specialty Solutions, posted revenue up 6% to $58.85 billion, short of expectations. The segment is home to Cardinal's core drug distribution business, spanning branded and generic medicines. Sales growth came from branded and specialty pharmaceuticals sold to existing customers, and segment profit benefited from strength in those products plus the generics program. Generic medicines sell at lower prices and carry better profit margins for Cardinal, which makes the generics program a profit driver. Specialty pharmaceuticals, including cancer treatments, are one of the segment's main growth stories. The segment also runs pharmacy management services for hospitals and sells consumer healthcare products under the Leader brand.
CFO Aaron Alt said on the post-earnings call that growth in GLP-1 drugs showed up in the segment's revenue. Cardinal said the GLP-1 growth was offset by lower Medicare drug prices, the negotiated rates authorized by the Inflation Reduction Act that took effect at the start of 2026. Those prices cap the wholesale acquisition cost of certain drugs. The company said the two forces left the segment's top line roughly neutral.
Cardinal distributes branded drugs on a fee-for-service basis, taking a small fee for each unit moved. The model lets segment profit rise with volume and leaves it largely insulated from price caps, the company has said. Cardinal has argued that its compensation should not change just because prices are lower. Drugmakers would not rely on its distribution network if the service had no value, Cardinal has said. CEO Jason Hollar made the same point on the call.
The CNBC Investing Club said lower wholesale acquisition costs could pressure future profits as contracts come up for renegotiation and drugmakers look to trim costs. Cardinal's position is that the value of its distribution service does not disappear when a drug's list price falls. The debate is not new; the industry and investors have been preparing since the IRA passed.
The Global Medical Products and Distribution segment, which makes and sources Cardinal-brand medical and surgical products and laboratory supplies, saw revenue slip to $3.13 billion. The segment's revenue was affected by the recognition of tariff refund repayments. Segment profit of $150 million included a $100 million benefit from tariff refunds. Excluding that benefit, the club said the normalized $50 million still looked good versus expectations. Operations span the U.S., Canada, Europe, Asia and other markets, and the segment distributes to hospitals and clinical laboratories in the U.S. and Canada.
The Other segment, the smallest with the fastest growth, grew revenue 7% to $1.72 billion. Sales and segment profit both came in short of Wall Street's view. The 10.6% segment profit margin was above what the Street expected, according to the club.
It houses Nuclear and Precision Health Solutions, which runs nuclear pharmacies and makes radiopharmaceuticals for PET scans, plus the at-Home and OptiFreight Logistics units. The at-Home business, which includes Edgepark and Advanced Diabetes Supply Group, delivers medical supplies directly to patients with chronic conditions. A separate business-to-business arm supplies medical products and over-the-counter items. OptiFreight provides shipping and logistics to health-care providers, with hospitals and pharmacies among its customers. Each of the segment's three businesses grew revenue, and segment profit growth came from at-Home and OptiFreight. Last month Cardinal made two acquisitions to expand the direct-to-patient business.
Segment guidance for fiscal 2027 calls for Pharmaceutical and Specialty Solutions revenue up 3% to 5% with segment profit up 8% to 11%. Global Medical Products revenue is expected to rise 2% to 4% with segment profit of $200 million to $220 million. Other revenue is forecast up 11% to 13% with segment profit up 15% to 18%.
The club said it was focusing on Cardinal's free cash flow and profit growth rather than the revenue miss. It described the quarter as imperfect because of the top-line shortfall and said Cardinal continues to deliver earnings growth. It also said the stock gives the trust diversification from technology, alongside drugmakers Johnson & Johnson and Eli Lilly in healthcare.
On AlphaScala's Cardinal Health stock page, the stock carries an Alpha Score of 58 out of 100, a Moderate rating.
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