Cardinal (CAH) Down 6.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Cardinal Health (CAH). Shares have lost about 6.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

Cardinal Health Q4 Earnings Top Estimates, Revenues Lag

Cardinal Health, Inc. reported fourth-quarter fiscal 2020 adjusted earnings of $1.04 per share, which surpassed the Zacks Consensus Estimate of 91 cents by 14.3%. However, the bottom line declined 6.3% year over year.

For the fiscal 2020, the company reported adjusted EPS of $5.45, which outpaced the Zacks Consensus Estimate by 3%. The figure improved 3.2% from the year-ago period.

Revenue Details

Revenues declined 1.8% on a year-over-year basis to $36.69 billion. The top line also missed the Zacks Consensus Estimate by 0.9%.

For fiscal 2020, the company’s revenues were $152.9 billion, up 5.1% from the year-ago period. The metric, however, lagged the consensus mark by 0.3%.

Segmental Analysis

Pharmaceutical Segment

In the fiscal fourth quarter, pharmaceutical revenues dipped 0.5% to $33.24 billion on a year-over-year basis. The downside was primarily due to lower pharmaceutical demand on account of accelerated fiscal third-quarter sales associated with the COVID-19 pandemic.

Pharmaceutical witnessed a decline of 19.7% in profits to $359 million. An adverse anticipated COVID-19 impact resulted in volume decline that primarily affected Nuclear and Precision Health Solutions and the company’s generics program. Also, Pharmaceutical Distribution customer contract renewals weighed on the performance.

Medical Segment

In the quarter under review, revenues at this segment declined 13% to $3.45 billion attributable to negative impact of cancelled or deferred elective procedures associated with the COVID-19 pandemic, especially on products and distribution.

Medical segment profit improved 23.7% to $120 million driven by benefits from cost savings initiatives and the beneficial comparison to a supplier-related charge in the previous year. However, adverse impact of the pandemic, particularly on products and distribution partially offset the upside.

Margin Analysis

Gross profit declined 5% year over year to $1.59 billion.

As a percentage of revenues, gross margin in the reported quarter was 4.3%, down 20 basis points (bps) on a year-over-year basis.

Distribution, selling, general and administrative expenses totaled $1.14 billion, down 2.7% year over year.

The company reported operating income of $270 million in the quarter under review, down 20.1% from the year-ago quarter. As a percentage of revenues, operating margin in the reported quarter was 0.7%, down 10 bps on a year-over-year basis.

Financial Update

The company exited the quarter with cash and cash equivalents of $2.77 billion, up 18.9% sequentially.

Net cash from operating activities totaled $240 million at end of the fiscal fourth quarter, compared with $506 million in the year-ago quarter.

2021 Guidance

The company anticipates adjusted earnings per share to range between $5.25 and $5.65. The Zacks Consensus Estimate is pegged at $5.30 per share (the fiscal 2021 EPS outlook takes into account an incremental net headwind associated with the COVID-19 pandemic of a similar year-over-year magnitude as witnessed in fiscal 2020).

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Cardinal has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cardinal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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