Cardinal Health Inc. (CAH)
SSG and PERT A (04-23-2005) | Google Stocks | Company Website
This is an update of the SSG for Cardinal Health. CAH is a buy.
News (07-26-2004): Cardinal Health’s Chief Financial Officer resigns.
From September 2004 IAS: Cardinal Health summarily discharged its Chief Financial Officer and announced that Michael Losh, retired CFO of General Motors, was on board as a replacement. The company announced that results for fiscal 2004, which would have been made late in July, will now not be made public until August or early September to allow Losh the opportunity to study and confirm the financials. We have no idea what exactly Losh will find, but undoubtedly there are problems of some seriousness to have caused such dramatic action. As far as is presently known, the main issue seems to be whether the company counted product that was in effect drop shipped from manufacturers to customers as part of normal sales. This would have been inappropriate. The pleasant tone of the comments of the departing CFO suggests that this is a matter of differing judgment, not a matter of fraud. However, certainly the market will keep this stock in turmoil for some time until final financial results are available. We still are solidly optimistic about the business of the company and top management, although we are concerned that there will be a significant period of turmoil. CAH (44.10) is a buy up to 73.
From August 2004 IAS: Cardinal Health dropped a horrendous 25% in price recently as the company announced lower earnings expectations for the fourth quarter of fiscal 2004 (ending June 30) and expectations of just over 10% growth for fiscal 2005. In addition, there was an announcement of a Securities and Exchange investigation of accounting policy in registering sales. Reasons given for the problems were three: (1) continuing transition from an inventory to “fee for service†paradigm being adjusted to by manufacturers was somewhat slower than expected, (2) delays in manufacturing of company’s sterile product line (which they expect to catch up later), and (3) management slippage. The CEO Bob Walter says that all three can be fixed and will be fixed. We believe that Bob Walter is a competent and trustworthy manager who has proven himself over a great many years. He states that after the present adjustment, the company will again progress at a growth rate of “mid-teens or better.†While we are disappointed with the present situation, with the stock now selling at a P/E of 15 even on fiscal 2004 earnings of about $3.54 and relying on the honesty of Bob Walter, we would not sell the stock, but would be inclined to add to holdings. We are encouraged to see the stock price show strength more recently. CAH (50.21) is a buy up to 73.
From Value Line (06-04-2004): Cardinal Health recently pared its earnings guidance for this fiscal year and next (years end June 30th). Earlier in fiscal 2004, management had issued a significant revision in its expectations for the company’s bottom line, from the typical 20%-plus year-over-year earnings advances that investors had come to expect to a more modest “mid-teens or better” growth rate–with margin pressure responsible for much of the bad news. However, Cardinal now expects to finish out the fiscal year with only an 11% improvement in net income, followed by an even more lackluster 10% advance in fiscal 2005, as delayed regulatory approvals in a key business and drug manufacturers’ tight rein on drug supplies have put additional pressure on margins. As such, we have cut our earnings estimates for this year and next by $0.15 and $0.35 a share, to $3.50 and $3.85, respectively. What’s more, investors have not taken the news well, as this issue’s value has tumbled by about 25% since the news was released. Finally, the stock’s Timeliness rank has fallen a notch, to 3 (Average), making it an uninspiring selection for the coming six to 12 months.
Company Description: Cardinal Health, Inc. is a leading provider of products and services for the healthcare ind. Sales (op. profit) in ’03: Pharma Distr. 82% (54%); Med. Prods.& Services, 13% (27%); Pharma Svcs. 4% (16%); Automation, 1% (12%). Operates distrib. ctrs. serving the cont’l U.S. Acq’d Whitmire Distrib., 2/94; Humiston-Keeling & Behrens, 7/94; Medicine Shoppes, 11/95; Pyxis, 5/96; Owen Health., 3/97; R.P. Scherer, 8/98; Allegiance Corp., 2/99; Bergen Bruns., 8/00; Bindley Western, 2/01. ’03 depr. rate: 7.1%. Has 50,000 empl. FMR Co. owns 10.5% of common; AXA Financial, 9.4%; Other off. & dir., 2.4% (9/03 Proxy). Chrmn. & CEO: Robert D. Walter. Inc.: OH. Address: 7000 Cardinal Place, Dublin, OH 43017. Tel: 614-757-5000. Internet: www.cardinal-health.com.