Cardinal Health (CAH) Surges Ahead: A Buy for Strong Earnings Momentum and Strategic Value

Cardinal Health (NYSE:CAH), a leading healthcare distribution and services company, has emerged as a standout performer in 2025, driven by improving earnings estimates, favorable valuation metrics, and robust momentum. With a Zacks Rank of #2 (Buy) and a 71.85% year-to-date (YTD) stock gain, CAH is positioned to capitalize on its sector leadership and upcoming earnings catalysts. Let's dissect the factors fueling this outperformance and why investors should take notice.

1. Improving Earnings Estimates: A Bullish Signal

Analysts have grown increasingly optimistic about CAH's prospects, with 8 upward revisions to full-year earnings estimates over the past two months, lifting the consensus from $7.99 to $8.18 per share. This upward momentum reflects stronger-than-expected operational execution, particularly in its pharmaceutical distribution and medical products segments.

The company's Q2 2025 earnings, scheduled for release soon, are anticipated to beat expectations. The Zacks Earnings ESP (Expected Surprise Prediction) of +1.10% suggests analysts believe CAH will report $2.04 per share, exceeding the consensus of $2.02. This confidence stems from cost discipline, supply chain stability, and rising demand for healthcare services post-pandemic.

2. Favorable Valuation Metrics: A Discounted Leader

Despite CAH's strong performance, its valuation remains compelling compared to peers. Key metrics include:
- Forward P/E: 18.22 (vs. a 5-year average of ~22.5), indicating undervaluation relative to growth.
- EV/EBITDA: 13.86 (vs. a healthcare sector average of ~14.9), positioning CAH as attractively priced for its scale and cash flow.
- Analyst Fair Value: $184.70, implying an 11.7% upside from current prices (~$165.40).

While the P/B ratio is listed as “N/A” due to a negative book value, this is offset by strong free cash flow (FCF) of $1.8 billion LTM, underpinning its ability to reinvest in growth or return capital to shareholders. With a 1.24% dividend yield and a conservative payout ratio (~32% of FCF), CAH balances income generation with reinvestment.

3. Positive Momentum and Technical Strength

CAH's stock has been a momentum leader, rising 33.67% in the past quarter and outperforming both the S&P 500 and healthcare sector benchmarks. The Zacks Momentum Style Score of “A” reflects strong relative strength, while its beta of 0.69 suggests lower volatility than the market.

The near-term technical picture is bullish, with the stock trading above key moving averages and consolidating in a ascending triangle pattern on weekly charts. A breakout above $175 could signal a move toward the $185–$190 resistance zone, aligning with the analyst fair value target.

4. Sector Leadership and Catalysts

CAH's dominance in healthcare distribution, serving 50% of U.S. hospitals and pharmacies, positions it to benefit from rising healthcare spending and inflation-driven pricing power. Its $222 billion LTM revenue and strategic focus on value-added services (e.g., medical device reprocessing) further solidify its competitive edge.

Upcoming catalysts include:
- Q2 Earnings Release: A beat could lift valuation multiples as analysts reassess growth prospects.
- Supply Chain Stability: Reduced disruptions post-pandemic support consistent margin expansion.
- Dividend Growth: The 1.24% yield, paired with CAH's strong balance sheet (Altman Z-Score of 4.9, signaling low bankruptcy risk), makes it a resilient holding in volatile markets.

Investment Recommendation

Cardinal Health (CAH) is a BUY with a 12–18 month price target of $180–$190, driven by its valuation upside, earnings momentum, and sector tailwinds. Key risks include regulatory pressures and supply chain volatility, but the Zacks Rank #2 and improving fundamentals suggest these are manageable.

Action Items:
1. Accumulate positions ahead of the Q2 earnings report.
2. Use dips below $160 as buying opportunities.
3. Hold for long-term capital appreciation and dividend growth.

CAH's blend of value, growth, and stability makes it a standout play in the healthcare sector. With catalysts aligned and valuation gaps closing, now is the time to consider this undervalued leader.

Disclaimer: Past performance does not guarantee future results. Always conduct your own research or consult a financial advisor before making investment decisions.