BofA raises Cardinal Health stock to Buy expecting upside to EPS estimates

Published 06/01/2025, 13:52
BofA raises Cardinal Health stock to Buy expecting upside to EPS estimates

On Monday, BofA Securities analyst upgraded Cardinal Health (NYSE:CAH) stock from Neutral to Buy, adjusting the price target upward to $145 from the previous $132. Currently trading at $119.30 and near its 52-week high, the stock has demonstrated impressive momentum with a 25.5% gain over the past six months.

The revision follows a period of notable organic growth in the company's core pharmaceutical segment, which has surpassed that of its competitors. Cherny highlighted that this growth is expected to continue and likely exceed market expectations in the upcoming year.

Cardinal Health's recent success has been attributed to gains from both new and existing customers, as well as a distinct advantage from a Pharmacy Benefit Manager (PBM) tailwind. With annual revenue reaching $224.45 billion and a market capitalization of $28.87 billion, the company has established itself as a major player in the healthcare sector. This tailwind is anticipated to contribute an additional 2-3 percentage points to the company's Earnings Per Share (EPS) growth through the fiscal year 2026.

According to InvestingPro, Cardinal Health maintains strong financial health with consistently growing net income. In addition to these factors, Cardinal Health's strategic acquisitions of specialty assets are expected to provide further positive revisions to earnings.

Despite the company's accelerated growth rate, its stock remains only modestly more expensive than that of Competitor Owens & Minor (COR) and is still trading at a 2-turn discount compared to McKesson Corporation (NYSE:MCK). Analysts at BofA Securities predict that the valuation gap between Cardinal Health and its peers will likely narrow or even reverse within the next 12 months.

The improved growth prospects, combined with Cardinal Health's relatively attractive valuation and the potential for earnings to surpass consensus estimates, have led BofA Securities to view the company's shares as presenting an attractive risk-reward profile. The new price target of $145 is based on 17.5 times the projected CY25 EPS, up from the previous multiple of 16.0.

In other recent news, T2 Biosystems (NASDAQ:TTOO) has decided to license its sepsis detection technology following record growth in sepsis test sales in 2024 and a commercial agreement with Cardinal Health. The decision aims to leverage the company's robust patent portfolio and scientific expertise to improve patient outcomes, reduce mortality rates, and lower healthcare costs. On a related note, Mizuho (NYSE:MFG) Securities has initiated coverage on Cardinal Health shares, recommending an Outperform rating.

In other recent developments, Cardinal Health has successfully raised $2.9 billion through a public offering of senior notes to partially finance the planned acquisitions of The GI Alliance Holdings, LLC, and Advanced Diabetes Supply Group. Despite a 4% decrease in total revenue, the company announced an increase in earnings per share (EPS) and adjusted free cash flow expectations for fiscal year 2025. This positive financial performance is largely attributed to the company's operations, particularly in the Pharmaceutical (TADAWUL:2070) and Specialty Solutions segment.

In addition, Cardinal Health announced plans to acquire Integrated Oncology Network for $1.1 billion. During the recent annual meeting, all 10 board nominees were elected and the executive compensation was approved. Ernst & Young LLP was ratified as the company's independent auditor for the fiscal year ending June 30, 2025.

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