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CAH Gains More Than 29% in 4 Months: Will the Uptrend Continue?
Cardinal Health CAH has gained 29.3% in the past four months, with investors increasingly recognizing the earnings contribution from its specialty-focused businesses and a broader portfolio of higher-margin growth assets. The Zacks Medical - Dental Supplies industry increased 19.5%, the Medical sector gained 10.8% and the S&P 500 Index rose 1.6% over the same period. While McKesson MCK gained 21.4%, Cencora COR rose 23.6%.
The company closed fiscal 2026 with strong momentum, as fourth-quarter revenues increased 6% to $63.7 billion, while gross profit rose 16% to $2.6 billion and operating earnings jumped 30% to $935 million. Full-year revenues increased 14% to $254 billion, while operating earnings climbed 30% to $3.6 billion.
The Pharmaceutical and Specialty Solutions segment remains the central earnings engine. CardinalCAH-- expects only 3-5% Pharma revenue growth in fiscal 2027 as fiscal 2026's unusually strong demand normalizes, but expects 8-11% segment profit growth, supported by higher-margin Specialty, generic and brand volume strength, MSO expansion and new distribution wins. This combination of resilient core distribution and fast-growing specialty businesses is boosting investor confidence in the durability of the earnings trajectory.
4-Month Share Price Performance
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Specialty Platform and MSO Expansion Strengthen the Growth Story
Specialty is becoming increasingly important to Cardinal Health's investment case. Cardinal Health's Specialty business grew 25% in fiscal 2026, significantly above its historical mid-teens growth rate. Specialty revenues topped $50 billion in the fiscal 2026. Management expects growth to moderate to the teens in fiscal 2027 as the business normalizes following its unusually strong fiscal 2026 performance.
The MSO strategy adds another layer of growth by expanding Cardinal Health's relationships with specialty physicians. The Specialty Alliance, including the integration of Solaris, is being expanded across multispecialty offerings, while management is prioritizing equity-based physician arrangements following stronger market acceptance of this model. Cardinal HealthCAH-- expects planned M&A to contribute 2-3% to fiscal 2027 profit growth, while continued MSO expansion should provide an additional structural growth driver.
Acquisitions and Other Businesses Drive Earnings Growth
Cardinal Health's acquisition strategy is increasingly contributing to both scale and profitability. The Solaris acquisition is expected to remain an important contributor in fiscal 2027, while the company expects its broader M&A portfolio to support profit expansion.
The company's Other businesses provide further diversification. At-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight Logistics generated 7% revenue growth and 14% profit growth in the fiscal fourth quarter. Although growth moderated sequentially as the company lapped the Advanced Diabetes Supply acquisition, demand remained healthy and ADS integration synergies continued to progress.
ADS has strengthened the at-Home platform, while Nuclear and Precision Health Solutions is benefiting from theranostics. OptiFreight continues to grow through healthcare logistics demand. Management therefore sees these businesses as important long-term growth assets supported by favorable secular trends.
Valuation and Competitive Position
CAH trades at a forward P/E of 18.41X, above its five-year median of 14.10X but below the S&P 500's 19.83X. McKesson trades at 18.75X, while Cencora trades at 16.32X. Thus, Cardinal Health is not deeply discounted against its direct peers, but remains relatively inexpensive compared with the broader market given its earnings trajectory.
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The lucrative market prospect of Specialty segment has also drawn CAH’s competitors into the business. McKesson reported 8% revenue growth and 16% operating-profit growth in the first quarter of fiscal 2027, led partly by North American Pharmaceutical and Oncology & Multispecialty. Cencora similarly reported strong specialty-led performance, with U.S. Healthcare Solutions operating income increasing 16% as OneOncology and RCA both performed ahead of expectations.
Cardinal Health's differentiated combination of pharmaceutical distribution, MSOs, specialty services and Other businesses therefore remains critical to sustaining its competitive position.
Challenges Facing the Outlook
The principal near-term risks are cost inflation and tariffs. Cardinal Health expects tariff benefits in fiscal 2027 to offset higher fuel and commodity costs, but acknowledged ongoing pressure from diesel, petroleum-based products, resins and other inputs. Prolonged elevated costs could push GMPD profit toward the lower end of its $200-$220 million guidance.
The company also faces normalization after exceptionally strong fiscal 2026 growth. It will lap the Solaris acquisition during fiscal 2027, while some prior customer and acquisition tailwinds will become less pronounced.
Conclusion
Cardinal Health's strong four-month rally reflects improving confidence in a business that is becoming less dependent on traditional pharmaceutical distribution and increasingly focused on specialty care, MSOs and higher-growth healthcare assets. Specialty's double-digit outlook, continued acquisition synergies and strong performance across Other provide meaningful earnings support.
Although the stock's Zacks Rank #3 (Hold) reflects a more balanced risk-reward profile after its rally, CAH's valuation remains reasonable relative to the S&P 500 and broadly comparable with McKesson. The stock therefore still appears relatively inexpensive given the quality of its earnings profile, although its valuation is not below its historical median. For existing investors, holding CAHCAH-- appears appropriate while monitoring specialty growth, acquisition execution and tariff-related cost pressures. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Cardinal Health, Inc. (CAH): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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