Cardinal Health, Inc. (CAH): A Top Long-Term Stock According to Billionaire Mason Hawkins

Cardinal Health, Inc. (CAH) has caught the attention of billionaire investor Mason Hawkins, the founder and chairman of Southeastern Asset Management, who recently upgraded the stock from Neutral to Buy. Hawkins' long-term investment strategy and focus on a "margin of safety" indicate his confidence in CAH's ability to navigate regulatory pressure and potential policy shifts. This article explores the aspects of CAH's business model and financials that appeal to Hawkins and discusses the key risks and challenges facing the company.

Cardinal Health, Inc. operates as a healthcare services and products company, providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home. The company operates in two segments: Pharmaceutical and Specialty Solutions, and Global Medical Products and Distribution. It distributes branded and generic pharmaceutical, specialty pharmaceutical, and over-the-counter healthcare and consumer products, as well as medical supplies. Additionally, CAH provides services to pharmaceutical manufacturers and healthcare providers for specialty pharmaceutical products, operates pharmacies, and repackages generic pharmaceuticals and over-the-counter healthcare products.



Several aspects of CAH's business model and financials appeal to Hawkins:

1. Strong Core Pharmaceutical Segment: Hawkins notes that CAH's core pharmaceutical segment is growing faster than its competitors. This growth is expected to strengthen in the coming year, which could add 2-3 percentage points to earnings per share growth through fiscal 2026.
2. Unique Advantage in PBM Business: CAH benefits from a unique advantage in its pharmacy benefit management (PBM) business, which is expected to contribute to earnings per share growth.
3. Discounted Stock Price: Despite its stronger growth potential, CAH's stock is trading at a notable discount compared to McKesson Corporation MCK. This gap is likely to close or reverse within the next year, making it an attractive investment opportunity.
4. Strong Recovery from Cybersecurity Incident: Henry Schein, another company upgraded by Hawkins, is recovering from a cybersecurity incident, which should boost reported figures and position it for long-term earnings growth. This recovery is driven by a shift toward private-label products and a growing focus on specialty services.
5. Long-Term Earnings Growth: Hawkins recognizes the potential for long-term earnings growth in both CAH and Henry Schein, driven by their respective business models and market positions.

However, CAH faces several key risks and challenges:

1. Regulatory pressure on PBMs: The analyst believes that regulatory pressure on PBMs will mainly impact profit margins and growth rates rather than lead to major changes in the business model. However, this pressure could still pose a risk to CAH's financial performance.
2. Potential policy shifts under the next administration: Changes in policy under the next administration could involve adjustments to the Inflation Reduction Act, expanded access to health savings accounts (HSAs), and increased support for fertility benefits. These shifts could impact CAH's operations and revenue streams.

Despite these challenges, Hawkins' upgrade of CAH to Buy indicates his confidence in the company's ability to navigate these risks and challenges. His long-term investment strategy and focus on a "margin of safety" suggest that he is likely considering diversification, concentrated positions, patience, and in-depth research and fundamental analysis to mitigate these risks.

In conclusion, Cardinal Health, Inc. (CAH) offers a compelling investment opportunity, with a strong business model, attractive financials, and the endorsement of billionaire investor Mason Hawkins. While the company faces regulatory pressure and potential policy shifts, its unique advantages and growth potential make it a top long-term stock pick. Investors should consider adding CAH to their portfolios, given its strong fundamentals and potential for long-term growth.