US stock Cardinal Health did well in the year to June 30. This year it’s expected to struggle. But the shares are cheap for a blue chip stock that rewards its shareholders by raising their dividends and buying back shares. Cardinal is a buy for gains and dividends.
Dublin, Ohio-based healthcare stock Cardinal Health (NYSE—CAH) performed well in the year to June 30, 2017. It continues to build its businesses. The company also continues to buy back its shares and raise its dividend almost every year. Its earnings per share are expected to fall this year before recovering next year. Then again, the shares are nicely valued. Cardinal is a buy for long-term share price gains as well as decent and growing dividends.
Cardinal “is a global, integrated healthcare services and products company, providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices worldwide. The company provides clinically proven medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency from hospital to home. Cardinal Health connects patients, providers, payers, pharmacies and manufacturers for integrated care coordination and better patient management.” Cardinal certainly is a global stock. It operates in nearly 40 countries. This reduces the company’s exposure to conditions in any one country.
Adjusted earning per share increased
Excluding one-time items, Cardinal earned an adjusted $1.727 billion, or $5.40 a share, in fiscal 2017. This was up by 3.1 per cent from adjusted earnings of $1.732 billion, or $5.24 a share, the year before.
Cardinal’s adjusted earnings per share went up even though its total adjusted earnings fell. That’s because it bought back 10 million shares. The company now has 320 million diluted shares outstanding. This is down from 448.7 million in fiscal 2002 (as far back as we looked). Since then it has bought back shares each year except one (in fiscal 2010). Many companies, like Cardinal, conserved cash in the last financial crisis and the ensuing recession.
More importantly, Cardinal rewards its shareholders by raising its dividend each year. Since fiscal 2002, it has increased its dividend every year except for during the financial crisis of fiscal 2008. The company has just raised its dividend again, by three per cent, to $1.85 a share. This is up by more than 20-fold from nine cents a share in fiscal 2002. Today’s dividend yields a decent 2.8 per cent.
Besides rewarding its shareholders, Cardinal is also building its businesses. Chairman and chief executive officer George Barrett said that fiscal 2017 was “a year in which we took important actions to strengthen our market positioning, grow our scale, add new, long-term drivers of growth, and improve the overall balance of our integrated portfolio”. This included both acquisitions and organic growth.
Cardinal’s businesses are growing
Cardinal has completed the $6.1 billion acquisition of Medtronic’s Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses. Cardinal acquired rights to Navidea’s Lymphoseek, a diagnostic imaging agent. Organically, it assisted independent pharmacists to diversify and improve their businesses with Cardinal’s services. And it became the exclusive US distributor of Cordis’ Tryton Side Branch Stent, which won regulatory approval to treat major coronary bifurcation lesions.
In fiscal 2018 (which began July 1), Cardinal’s adjusted earnings are expected to decline by 8.1 per cent, to $4.96 a share. (Cardinal shows two sets of earnings. The more flattering ones are the adjusted earnings. The second set is more conventional. In the year to June 30, Cardinal earned $1.288 billion, or $4.03 a share. This was second only to net earnings of $1.427 billion, or $4.32 a share, the year before.)
Falling prices for generic drugs is hurting it. But the company expects its earnings will more than recover, to $5.56 a share next year. Based on these estimates, the shares trade at reasonably-low price-to-earnings ratios of 14 and 12.5 times, respectively.
Cardinal Health Inc. is a blue chip bargain stock to buy for long-term share price gains as well as decent and growing dividends.
This is an edited version of an article that was originally published for subscribers in the August 18, 2017, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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