On Thursday, Deutsche Bank (ETR:DBKGn) updated its outlook on Cardinal Health (NYSE:CAH), raising the price target to $119.00 from $115.00 while keeping a Hold rating on the stock. The adjustment follows Cardinal Health's fourth-quarter earnings surpassing expectations and the company's increased forecast for fiscal year 2025.
The revised earnings per share (EPS) guidance is set between $7.55 and $7.70, up from the previous forecast of over $7.50, and slightly above the market consensus of $7.53.
The enhanced EPS guidance includes an additional 5-20 cents, with around 11 cents stemming from reduced interest expenses and an increased share repurchase program. Interest and other expenses are anticipated to be $20 million lower than initially estimated, and the company has boosted its share buyback allocation by $250 million to $750 million, up from the earlier $500 million estimate.
Despite the overall positive headline numbers, the details within Cardinal Health's segments present a mixed picture. The Pharmaceutical and Specialty Solutions (PS&S) segment is still projected to decline by 4-6%, primarily due to a $39 billion revenue impact from the expiration of the OptumRx contract.
However, the segment's profit outlook has been improved, now expected to grow by 1-3%, which helps to mitigate concerns from the fourth-quarter operating results.
Cardinal Health also expects a modest contribution from Special Networks, and the Specialty business is forecasted to expand, focusing on biosimilars and therapy solutions, even with the non-renewal of certain contracts.
The company noted that OptumRx remained a customer through the end of the fourth quarter, and the unwinding of this relationship is likely to affect first-quarter results and continue throughout the year. Nonetheless, new customer onboarding is expected to compensate for the second half's revenue.
The Medical segment, known as Global Medical Products Distribution (GMPD), concluded the year with a segment profit of $205 million, which is a $240 million improvement year over year. This segment is on course to meet its $300 million profit target by fiscal year 2026.
The company emphasized that the Medical segment is still in the early stages of a turnaround, with profitability anticipated to be more pronounced in the latter half of fiscal year 2025.
Additionally, after several reviews by committees and the Board, Cardinal Health has decided to continue investing in its Nuclear and Precision Health Solutions business. The company also plans to further develop atHome solutions and OptiFreight to drive long-term growth.
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