Cardinal Health Raises Guidance, Strategic Acquisitions Justify Buy Rating: Morgan Stanley

Cardinal Health's raised FY26 EPS guidance, driven by a change in accounting for The Specialty Alliance and a slight increase in Pharma AOI target, reflects a positive outlook on the company's operational efficiency and profitability. The acquisition of Solaris Health, expanding Cardinal Health's Specialty Alliance, is expected to be accretive to earnings. Despite a slight miss in Q4 Pharma AOI, the overall guidance raise and strategic acquisitions justify Morgan Stanley's Buy rating.

Cardinal Health Inc. (CAH) has raised its fiscal year 2026 earnings per share (EPS) guidance, driven by a change in accounting for The Specialty Alliance and a slight increase in its Pharma AOI target. This move reflects a positive outlook on the company's operational efficiency and profitability. The acquisition of Solaris Health, which expands Cardinal Health's Specialty Alliance, is expected to be accretive to earnings. Despite a slight miss in Q4 Pharma AOI, the overall guidance raise and strategic acquisitions justify Morgan Stanley's Buy rating.

Cardinal Health announced on Tuesday that it will acquire Solaris Health for $1.9 billion in cash. The acquisition will be completed through Cardinal's Specialty Alliance unit, with Cardinal owning approximately 75% of the healthcare management unit post-acquisition. The deal is valued at around $2.4 billion, including $500 million in rollover equity from Solaris' physicians. Solaris provides administrative and management support services to healthcare providers in the urological field, giving Cardinal access to a network of community urologists across over 750 providers in 14 states [1].

The acquisition aligns with Cardinal Health's strategy to expand its specialty business, which includes costly medicines to treat complex conditions such as cancer and rheumatoid arthritis. The deal follows Cardinal's $1.12 billion acquisition of Integrated Oncology Network last year, further bolstering its presence in cancer care. Cardinal Health's specialty business is expected to benefit from strong demand for specialty medicines and branded drugs, as reflected in the company's raised EPS guidance [2].

Cardinal Health's Q4 revenue of $60.16 billion came in slightly below analysts' estimates, but the company raised its 2026 profit forecast to $9.30 to $9.50 per share, up from the previous forecast of $9.10 to $9.30. The company expects annual adjusted per-share profit to reach $2.08, narrowly beating estimates of $2.04. The acquisition of Solaris Health is expected to contribute to this growth, with Cardinal Health planning to finance the deal with a combination of cash on hand and new debt financing [1].

Despite a slight miss in Q4 Pharma AOI, Cardinal Health's overall strategic initiatives and operational efficiency have reinforced its growth strategy. The company's long-term performance, with a total shareholder return of 242.03% over five years, and its ability to outperform the US Healthcare industry and the broader US market, reflect its robust positioning. The consensus analyst price target of $179.93 indicates a potential upward move, with expectations that Cardinal Health will maintain its growth trajectory and enhance earnings per share [3].

References:
[1] https://medicalbuyer.co.in/cardinal-health-to-acquire-solaris-health-for-usd-1-9-billion-in-cash/
[2] https://www.thenews.com.pk/latest/1335157-cardinal-health-to-buy-solaris-health-for-19-billion-cash-deal
[3] https://simplywall.st/stocks/us/healthcare/nyse-cah/cardinal-health/news/cardinal-health-cah-reports-us1561-million-net-income-with-s