Shares of Cardinal Health (NYSE: CAH) have nearly doubled over the last year and are leading the S&P 500 in 2023, but the gains are not over. The company updated its outlook at the recent investor day, and the details are bullish for the market. The takeaway is that profitability is on the rise, the dividend is safer than ever, repurchases have been increased, and analysts are cheering the news. Assuming these trends continue, the stock is poised to set another new high in 2023 and possibly a new all-time high.
Cardinal Health Updates Guidance
Cardinal Health stock got a boost from the Q1 release and guidance, and it got another just a month later at the investor day event. The company adjusted guidance to a narrower range driven by improving operational quality. The company expects FY EPS of $5.65 to $5.80 compared to the $5.60 to $5.80 announced in May and the $5.20 to $5.50 announced at the end of last year.
In addition, Cardinal announced a longer-range target that expects revenue growth and margin improvement over the next 2.5 years. The company says the revenue CAGR for its pharmaceutical business should run at 10%, with the medical business growing at a slower 3-4% CAGR. The best news is that adjusted EPS is expected to grow at a 14% CAGR, so the board authorized another share repurchase allotment.
The new share repurchase authorization is worth $3.5 billion or about 16% of the market cap, with shares trading at $87. The company expects to use $2 billion over the next 2 years, worth about 9% of the market cap. That is in addition to the company’s dividend, which is also substantial.
Cardinal Health is a Dividend Aristocrat with 38 years of consecutive distribution increases to its credit and the power to add another 38 to the data. The payout is running about 33% of the earnings guidance at the low end of the range, with double-digit EPS growth expected for the next 3 years. The company issued a dividend increase with the last declaration worth 1% to investors. At that pace, the company should be able to sustain distribution increases indefinitely while investing in the business and paying down debt. Cardinal has a low 2.3X leverage ratio, so debt is not a concern now.
The Analysts Help Cardinal Shares Soar
The analysts rate Cardinal Health at Hold, but Marketbeat’s data suggests their sentiment is more bullish than that. The consensus price target has been increasing for at least the last 12 months, leading the market higher. The earnings release sparked a few updates, but the investor day did more. It sparked 9 new updates, including 9 price target increases, and all but 2 are above the consensus. The highest, the new high target, is from Robert W. Baird and is $103. That is 18% above the action and has the stock well into the new all-time high territory.
The stock is trading just below the $87 level and on the verge of breaking a new 2023 high. This move may be the trigger to get new money flowing into the market. If so, this stock could reach the $94 level by mid-summer, if not sooner. If not, CAH shares may remain range bound at current levels until another catalyst emerges.