On Monday, Wells Fargo (NYSE:WFC) adjusted its outlook on Cardinal Health (NYSE:CAH), reducing the share price target to $94 from $96 while keeping an Underweight rating on the shares. The firm's analyst cited a decrease in the expected earnings per share for the calendar year 2025, which now stands at approximately $7.82, showing a near 2% drop.
This revised earnings projection has also influenced the enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple, which is calculated using the balance sheet forecast for December 31, 2024, and includes considerations for opioid liabilities.
The analyst noted that the recent resolution of the Optum contract, which is no longer considered an uncertainty, does not warrant an increase in the target multiple for Cardinal Health. Despite the end of the contract's overhang, the firm's stance remains cautious, and no adjustment to the valuation multiple has been made following the contract's conclusion.
The report further elaborated on market dynamics, hinting at potential challenges ahead for Cardinal Health. The analyst expects that there will be heightened attention on the risks associated with increasing competitive intensity in the industry. This comes after Optum's decision to transition to McKesson (NYSE:MCK) and in light of recent customer acquisitions by Cardinal Health.
Wells Fargo's revised price target reflects a continued application of a 12 times multiple on the forecasted CY2025 earnings per share. This valuation approach also translates to a 9.5 times multiple on EV/EBITDA, taking into account the financial position at the end of 2024 and the financial impact of opioid-related liabilities.
InvestingPro Insights
In light of Wells Fargo's recent revision of Cardinal Health's price target, examining up-to-date metrics and insights from InvestingPro can provide investors with a broader perspective on the company's financial health and market position. Cardinal Health has been demonstrating a commitment to enhancing shareholder value, as evidenced by its aggressive share buyback strategy and a notable history of dividend growth, having raised its dividend for 42 consecutive years. This is in line with the company's strong shareholder yield, which is a positive sign for investors looking for stable income.
InvestingPro Data shows Cardinal Health with a market capitalization of $25.1 billion and a forward P/E ratio for the last twelve months as of Q2 2024 at 18.09, which is lower than the current P/E ratio of 40.79. This suggests that the company is trading at a lower price relative to near-term earnings growth. Additionally, the PEG ratio for the same period stands at a modest 0.26, indicating potential for growth at a reasonable price. The company's revenue growth is also robust, with an 11.99% increase in the last twelve months as of Q2 2024.
For investors seeking more in-depth analysis, InvestingPro offers additional insights, including the fact that Cardinal Health operates with a moderate level of debt and that its cash flows can sufficiently cover interest payments. These factors, combined with the company's profitability over the last twelve months and a strong return over the last five years, paint a picture of a financially sound company within the Healthcare Providers & Services industry. Investors can explore further by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which provides access to a total of 17 InvestingPro Tips for Cardinal Health, including more detailed financial analysis and projections.
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