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Cardinal Health to offset OptumRx contract loss with new strategies

Published 22/04/2024, 18:04

DUBLIN, Ohio - Cardinal Health (NYSE: NYSE:CAH) disclosed today that it will not renew its pharmaceutical distribution contracts with OptumRx, which are set to expire by the end of June 2024.

Despite this development, the company has reaffirmed its fiscal 2024 non-GAAP diluted EPS guidance of $7.20 to $7.35.

The company also reiterated its commitment to achieving a compound annual growth rate (CAGR) of 4% to 6% for its Pharmaceutical and Specialty Solutions segment profit and a consolidated non-GAAP EPS CAGR of 12% to 14% for fiscal years 2024 to 2026, based on fiscal 2023 figures.

Cardinal Health's sales to OptumRx accounted for 16% of its consolidated revenue in fiscal 2023, with the majority of these sales stemming from the Pharmaceutical Distribution business, which mainly supplied non-specialty bulk shipments to Optum's mail dispensing facilities.

The company noted that these sales generate a significantly lower operating margin compared to the overall segment.

Despite the nonrenewal, Cardinal Health expects to mitigate the impact and continue its growth trajectory in fiscal 2025 through new customer acquisitions, specialty growth, and other measures. The company also anticipates maintaining an adjusted free cash flow of about $2 billion on average from fiscal 2024 to 2026, with a lower-than-average projection for fiscal 2025 due to the unwinding of negative net working capital related to the OptumRx contract.

Jason Hollar, CEO of Cardinal Health, expressed confidence in the company's plans for profitable growth in fiscal 2025 and the resilience of its business model. Debbie Weitzman, CEO of the Pharmaceutical and Specialty Solutions division, highlighted the potential for onboarding new customers and integrating additional capabilities from Specialty Networks in fiscal 2025.

Cardinal Health, a global distributor of pharmaceuticals and medical products, with a presence in over 30 countries and approximately 48,000 employees, remains focused on executing its strategic plan and capturing new market opportunities.

This report is based on a press release statement from Cardinal Health.

InvestingPro Insights

Cardinal Health (NYSE: CAH) has been navigating the complexities of the pharmaceutical distribution landscape with a strategic approach that seems to be resonating with investors. According to InvestingPro data, the company boasts a robust market capitalization of 26.32 billion USD, reflecting its significant presence in the healthcare sector. Despite the recent news about the nonrenewal of its distribution contracts with OptumRx, Cardinal Health's management is not sitting idle. An InvestingPro Tip highlights that management has been aggressively buying back shares, a move often seen as a signal of confidence in the company's future and a method to return value to shareholders.

Moreover, the company's commitment to shareholder returns is further evidenced by its impressive track record of raising its dividend for 36 consecutive years, as noted by another InvestingPro Tip. This consistent dividend growth, coupled with the company's strategy to pursue profitable growth avenues, suggests a management team that is focused on long-term shareholder value.

InvestingPro data reveals a P/E ratio of 42.46, which adjusts to a more attractive 18.97 when looking at the last twelve months as of Q2 2024. This adjustment indicates a more favorable valuation when considering near-term earnings growth. Additionally, the company is trading at a low PEG ratio of 0.27 for the same period, suggesting that the stock may be undervalued relative to its earnings growth potential.

For those interested in deeper analysis and more tips, there are an additional 18 InvestingPro Tips available for Cardinal Health at https://www.investing.com/pro/CAH. Readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights that could help in making more informed investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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