This Stock is a “Strong Buy” and Has Numerous Bullish Catalysts

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Cardinal Health (CAH) is a multinational healthcare services and products company based in the United States. It operates as a crucial player in the pharmaceutical and medical supply chain, providing a range of services to healthcare institutions, pharmacies, and manufacturers.

Cardinal Health is involved in pharmaceutical distribution, manufacturing of medical products, and offering various solutions to enhance the efficiency and effectiveness of healthcare delivery. The company plays a significant role in the US healthcare infrastructure and does an incredible $200 billion in sales per year.

Cardinal Health also enjoys a Zacks Rank #1 (Strong Buy) rating, demonstrating upward trending earnings revisions, and forecasts impressive EPS growth over the next few years. Additionally, after acquiring healthcare analytics company Specialty Networks for $1.2 billion, the stock broke out of a compelling technical chart pattern.

Earnings Estimates

After bottoming out at the end of 2022, earnings estimates have been steadily climbing higher over the past two years placing Cardinal Health on the top of the Zacks Rank on a number of occasions. Over that period the stock has returned 123%.

Current year sales are projected to climb 10.3% YoY to $226 billion and next year is expected to grow 8.2% to $245 billion, a strong growth rate for such a large company. Over those same intervals, earnings are expected to increase 19.3% and 12.3% YoY respectively.

Furthermore, over the next 3-5 years, EPS are forecast to grow at an average annual rate of 15.3%, which is not only an enviable growth rate, but especially for its reasonable relative valuation.

Image Source: Zacks Investment Research

Valuation

CAH is trading at a one year forward earnings multiple of 15.5x, which is well below the industry over of 18.8x, but above its 10-year median of 13.1x. However, based on the strong EPS growth projections, CAH has a PEG Ratio of 1x, indicating fair value.

Thus, investors can expect to buy a fair valued company growing profits at 15% annually, which although not a deep discount seems like a fair deal. CAH also pays a tidy dividend yield of 1.9%.

Image Source: Zacks Investment Research

Technical Setup

Finally, after announcing the acquisition on Wednesday morning, Cardinal Health stock broke out from this 3-month bull flag. This breakout brought the share price to new all-time highs and indicates powerful momentum behind the buying.

So long as the stock price doesn’t breakdown below the breakout level of $106, CAH should continue to climb.

Image Source: TradingView

Bottom Line

Cardinal Health currently offers investors the opportunity to buy one of the most critical pieces of the US healthcare infrastructure at a very fair value.

And for investors looking to add some defensive positioning while the US monetary policy begins a major shift, healthcare names like Cardinal can often provide market beating returns during uncertain times.

Because of these numerous bullish catalysts, I believe Cardinal Health to be a worthy consideration for any investor.

— Ethan Feller

 

This article was originally published on this site