Is Cardinal Health (CAH) Still Offering Value After A 71% One Year Share Price Surge

• If you are looking at Cardinal Health and wondering whether the recent share price puts it at a premium or still leaves room for value, this breakdown is designed to help you frame that question clearly.
• The stock recently closed at US$205.45, with a 7 day return of a 0.8% decline, a 30 day return of 3.3%, a year to date return of a 0.1% decline, a 1 year return of 71.4%, a 3 year return of 177.5%, and a 5 year return of 314.0%.
• Recent attention on Cardinal Health has been shaped by ongoing interest in large healthcare distributors and discussion around how these businesses fit into longer term healthcare spending trends. This context helps explain why investors are reassessing what they are willing to pay for the shares, even without any immediate earnings headlines driving the story.
• On our valuation framework, Cardinal Health scores 3 out of 6 on undervaluation checks. This sets up a closer look at how different valuation methods line up, and provides a broader way of thinking about value that we will come back to at the end of the article.

Cardinal Health delivered 71.4% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: Cardinal Health Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and then discounting those projections back to a present value.

For Cardinal Health, the model used is a 2 Stage Free Cash Flow to Equity approach. The company’s latest twelve month free cash flow is about $4.46b. Analysts provide explicit forecasts out to 2030, with projected free cash flow of $4.39b in that year. Beyond the first few years, Simply Wall St extrapolates the path of free cash flow using its own assumptions, which you can see in the ten year projection set.

When those projected cash flows are discounted back to today and summed, the model arrives at an estimated intrinsic value of about $461.54 per share. Compared to the recent share price of $205.45, this suggests Cardinal Health trades at roughly a 55.5% discount to that DCF estimate, which indicates the shares may be undervalued on this framework.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Cardinal Health is undervalued by 55.5%. Track this in your watchlist or portfolio, or discover 877 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Cardinal Health.

Approach 2: Cardinal Health Price vs Earnings

For profitable companies, the P/E ratio is a useful shorthand because it links what you pay for each share directly to the earnings that business is generating today.

In simple terms, higher growth expectations and lower perceived risk usually justify a higher P/E, while slower growth or higher risk tend to pull a “normal” or “fair” P/E lower. The key question is whether Cardinal Health’s current P/E looks reasonable in that context.

Cardinal Health is trading on a P/E of 30.6x. That is above the broader Healthcare industry average of about 23.3x and also above the peer group average of 27.2x, which on a simple comparison might make the stock look relatively expensive.

Simply Wall St’s Fair Ratio for Cardinal Health is 30.8x. This is a proprietary estimate of what the P/E “should” be, given factors such as earnings growth, profit margins, industry, market cap and specific risks. Because it blends these company specific inputs, it can be more informative than relying only on broad industry or peer averages.

With the current P/E of 30.6x sitting very close to the Fair Ratio of 30.8x, the shares look fairly priced on this metric.

Result: ABOUT RIGHT

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1459 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Cardinal Health Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply your own story about a company that ties your view of its future revenue, earnings and margins to a financial forecast, a fair value estimate and then a clear comparison with today’s price. All of this is available within an easy tool on Simply Wall St’s Community page that updates as new news or earnings arrive. For Cardinal Health, one investor might build a Narrative around the higher analyst price targets in the US$210 to US$220 range, while another leans toward the lower US$150 view, helping each decide whether the current price looks high, low or close to their idea of fair value.

Do you think there's more to the story for Cardinal Health? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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