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 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 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 priceof 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: