So far, Cardinal Health (CAH) stock is up only about 2.5 percent in 2020. The stock is underperforming the S&P 500. The stock also has an attractive forward dividend yield of 3.75 percent, which is almost double the S&P 500. However, the stock has been out of favor with investors and is down 38 percent over the last five years. Is CAH stock a buy after the underperformance or are investors better off selling the stock given its perennial underperformance?
Cardinal Health stock is up 13.3 percent in November. The stock rallied earlier in the month as its fiscal first quarter 2021 earnings beat the estimates. However, CAH recorded $1 billion opioid-related charges in the first quarter.
What is Cardinal Health?
Cardinal Health is a global healthcare company headquartered in Ohio. According to CAH, it “connects patients, providers, payers, pharmacists, and manufacturers for integrated care coordination and better patient management.” The company serves around 90 percent of the hospitals in the U.S. The company also serves over 6,500 labs and 29,000 pharmacies.
Cardinal Health versus McKesson Corporation
Both Cardinal Health and McKesson Corporation are in the healthcare distribution industry. McKesson posted revenues of $234 billion in the last 12 months compared to Cardinal Health’s revenues of $154 billion. Like Cardinal Health, McKesson Corporation has also been trading down over the last five years. CAH’s market capitalization is $15.2 billion, while McKesson's market capitalization is $27.3 billion. McKesson's forward dividend yield is only about 1 percent.
CAH stock price?
CAH stock was trading 0.85 percent higher in the pre-market on Monday, Nov. 23. On Nov. 20, CAH stock closed at $51.86, which is slightly above its 200-day simple moving average of $51.16. Its relative strength index was 49.94. The stock needs to break above its 200-day simple moving average decisively to signal a short-term uptrend.
CAH's stock forecast
According to data compiled by CNN, CAH stock has a median target price of $61, which represents a 17.6 percent upside over the next 12 months. Its highest target price is $70, while its lowest target price is $50.
Looking at the valuations, CAH stock is trading at an NTM PE multiple of 9.0x, which is below its historical trading multiples. Looking at the valuation multiple and high dividend yield, CAH stock looks like an attractive pick for value investors especially those who like stocks that pay high dividends.
Should you buy CAH stock now?
CAH stock sold off along with GoodRx, CVS Health, and Walgreens last week after Amazon launched an online pharmacy in the U.S. Such a reaction isn't uncommon. Last year, Ulta Beauty and Sally Beauty stocks fell after Amazon launched its entry into beauty products used by professionals.
CAH stock appears to offer decent value at these prices. Given the shift from growth to value stocks, we can see more returns from value stocks like CAH. The stock looks like a buy at these prices.