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Cardinal Health: Stable Net Profit Margins in Fiscal 2018?

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Specialty solutions

For fiscal 2018, Cardinal Health (CAH) expects to report non-GAAP (generally accepted accounting principles) EPS (earnings per share) of $4.85–$5.10. The earnings performance might be partially driven by solid growth trends for the company’s Specialty Solutions segment, which reported $12.0 billion worth of revenues in fiscal 2017.

According to Barclays’s U.S. Health Care Distribution & Technology Specialty Market Model, pharmaceutical spending was $299.0 billion in 2011, of which 17.0% was spent on specialty pharmaceuticals. In 2016, pharmaceutical spending in the United States rose to $412.0 billion, while the percentage of specialty pharmaceutical spending increased to 28.0%. It’s estimated that pharmaceutical spending in 2021 will be ~$572.0 billion, while specialty pharmaceutical spending will account for 42.0% of that total value. So spending on specialty pharmaceuticals is expected to grow at a CAGR (compound average growth rate) of 17.0% by 2021.

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In 2016, Cardinal Health Specialty Solutions had a strong presence in therapeutic areas such as oncology, hematology, rheumatic diseases, gastrointestinal diseases, ophthalmology, and immunology. If the company maintains its stronghold in specialty pharmaceuticals in fiscal 2018, it could boost Cardinal Health stock as well as the stock of the SPDR S&P Dividend ETF (SDY). Cardinal Health makes up 0.83% of SDY’s total portfolio holdings.

Net profit margin trends

Wall Street analysts have projected Cardinal Health’s fiscal 2018 net profit margins to be 1.0%, which will be similar to what the company reported in fiscal 2017.

Peers such as AmerisourceBergen (ABC), Express Scripts (ESRX), and McKesson (MCK) are expected to earn net profit margins of 0.80%, 3.1%, and 1.3%, respectively, in 2017.

In the next part, we’ll look at Cardinal Health’s Specialty Solutions segment in greater detail.

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