Is Cardinal Health a potential buy

Cardinal Health (CAH) is another stock of the health sector which experienced a heavy decrease in its stock in the year 2017. The total performance is -18.65%. The current share price is at 58.55 USD which offers you a yield of 3.06%. But let’s have a look at the stock if it is a potential buy.

Company Overview

Cardinal Health- (CAH)-provides products and services to the healthcare industry. The company’s Healthcare Supply Chain Services-Pharmaceutical segment distributes various branded and generic pharmaceutical products, over-the-counter healthcare products, and consumer products to retail customers, hospitals, and alternate care providers in the United States. Cardinal Health was founded in 1979 and is headquartered in Dublin, Ohio. CAH has increased its dividend since 13 years an currently pays a yearly dividend of 1.85 USD.

Stock analysis

Currently CAH is priced at 58.55 USD per share, which is 35.9% below its 5 year high of 91.40 USD in April 2014 last year. The drop in the share price is again one of typical market overreactions, driven by fears of lower margins and of course a lower guidance in the future. But nevertheless the recent drop looks for me more like an overreaction like it is at WBA and CVS as well.

Current Valuation

As you can see the current ratios are besides of the Price/Sales ratio all below the 5 year average. Using my current method to calculate a fair share price based on the 5 year average numbers, I would get a price of 75.00 USD so from that perspective the current level of the share is fair. If I use the Market Fair Value Ratio according to morningstar I would get a priceĀ  of 82.46 USD.

The outlook for CAH is expecting a 5-Year growth of 16.2%, which means a yearly growth rate of 1.75% and the next year forward P/E ratio will be at around 11.8. In my further analysis I also included a simple calculation with the following Graham Formula:


The result was a price of 59.72 USD.

So all in all you can say that Cardinals Health is fairly priced and currently definitely a stock to watch in the next couple of weeks.

Dividend and EPS Overview

In the table below you will see an overview with the most important ratios EPS, Dividends, FCF and outstanding shares. Although the the development in last 5 years looks quite well. You should also keep an eye on the development of the number of outstanding shares. Using the number from 2012 to calculate the EPS the pay out ratio already would be at 57.85% and not at current one of 53.06%.

How much dividend income would I generate in next 8 years?

As you can see I am not expecting a large growth in the yearly dividend but I also think the current free cashflow and EPS situation leaves enough room for future growth. The high growth of the last 5 years of around 16% are nevertheless currently not an indicator for the future, that’s why I assumed a more conservative growth.

Financial Health

So let’s finally have a look at the most important part the financial situation of CAH. Well to be honest about it I am not happy of the development of the equity there is a constant decrease in it in the last 10 years and I think it should be one the companie’s goals to reduce the debt level in the future. But nevertheless the situation is still ok as there is still enough cashflow out there.

  • Equity Ratio: 15.92%
  • Debt to Equity: 1.36


I think the latest decline of the share price is a good opportunity to buy CAH at its current price level. What is also a reason for me to buy US stocks is the currently strong EUR, the exchange is currently almost 1.16 USD which is not really reasonable. It is mostly affected by the mistrust in Mr. Trump and I think will not be permanently. The next point is the dividend yield of currently 3.06% is very high for such a stock like CAH. But I would only add a small portion to my portfolio as for me the financial situation is not that outstanding, on the other side the market currently offers you a good buying opportunity.

What do you think about CAH? Would you buy it at its current price or do you even have it already in your portfolio?

Disclosure: Long CAH

I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding!


  1. Thanks for the analysis! I recently opened a position in CAH with 5 shares @ 60.50. Right before the price drop to it’s current levels, that was a bummer but still exited to open a new position.

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