On Wednesday, Baird has updated its outlook on Cardinal Health (NYSE:CAH) shares, increasing the stock's price target to $129 from the previous $128, while reaffirming an Outperform rating.
The revision reflects a comprehensive valuation approach, incorporating price-to-earnings (P/E), discounted cash flow (DCF), and enterprise value to EBITDA (EV/EBITDA) analyses.
The firm's P/E analysis takes into account near-term and long-term forecasts, adjusting the latter for time and risk. A 16.0x multiple is employed across one-year, two-year, and long-term P/E projections.
The DCF model includes a weighted average cost of capital (WACC) of approximately 8% and a terminal growth rate of 2.0%. Additionally, a 10.0x multiple is applied to the next twelve months (NTM) forecast in the EV/EBITDA analysis.
Cardinal Health faces specific risks associated with customer concentration, as significant business comes from clients such as CVS and OptumRx. Notably, the firm will contend with the impact of a contract loss effective July 1.
Other risks highlighted include the company's unique exposure in its Medical segment compared to peers, the ongoing opioid litigation—although the risk is significantly mitigated by a global settlement—and the potential for recalls which are more pronounced in this market.
The analyst also pointed out broader sector risks such as possible shifts in market sentiment and the potential for changes in drug pricing policy. These factors are important considerations in the firm's assessment of Cardinal Health's stock and its performance outlook.
InvestingPro Insights
Baird's recent price target increase for Cardinal Health (NYSE:CAH) is supported by several positive indicators from InvestingPro. Notably, Cardinal Health has been recognized for its commitment to shareholders, as evidenced by its 42 consecutive years of maintained dividend payments, a testament to its financial stability and dedication to returning value to investors. Additionally, the company's management has been actively buying back shares, signaling confidence in the company's future and potentially bolstering shareholder value.
From a valuation perspective, despite a high P/E ratio of 42.33, the adjusted P/E ratio for the last twelve months as of Q3 2024 stands at a more moderate 15.11, which aligns with Baird’s P/E analysis for long-term forecasts. The company also boasts a strong free cash flow yield, which can be an attractive metric for investors looking for companies with healthy cash generation capabilities relative to their share price. Moreover, Cardinal Health's revenue has grown by 11.03% over the last twelve months as of Q3 2024, indicating robust business performance.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available on InvestingPro's Cardinal Health page. Investors can also take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes comprehensive investment tools and insights.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.