Cardinal Health Inc. CAH is well-poised for growth, given its long-term supply agreements, diversified product portfolio and strong quarterly earnings. However, the possibility of losing a major customer remains a risk.

Shares of this Zacks Rank #2 (Buy) company have risen 12.7% in the past year compared with the industry’s 1.5% growth. The S&P 500 Index has gained 26.2% in the same time frame. 

CAH, with a market capitalization of $28.62 billion, is a nationwide drug distributor and service provider to pharmacies, healthcare providers and manufacturers. The company has an earnings yield of 6.6% compared with the industry's 5.7%. It anticipates earnings to improve 10.2% in the next five years.

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Reasons Favoring CAH’s Growth

Diversified Product Portfolio: Cardinal Health's Medical and Pharmaceutical offerings give it a competitive edge, with innovations like WaveMark improving clinical lab processes and automation used in more than 2,500 operating rooms. The company also launched cancer screening solutions from FUJIFILM Healthcare Americas and Polymedco to address pandemic-related delays in diagnoses. Additionally, Cardinal Health is seeing growth with its Navista TS product line and the Kendall SCD SmartFlow Compression System, aimed at improving patient outcomes.

The company is focusing on growth areas like Specialty, At-Home Services and Medical & Pharmaceutical Distribution, including expanding its services through the acquisition of Advanced Diabetes Supply Group. Cardinal Health is investing in its core distribution capabilities, IT infrastructure and differentiated product portfolio to drive long-term growth and adapt to market needs.

Long-term Supply Agreements: Cardinal Health is also pursuing growth via joint ventures and long-term supply agreements with several firms, which have likely kept investors interested. The company entered into a long-term strategic agreement with Henry Schein. Under this deal, Henry Schein purchased Cardinal Health’s medical supplies for physician practices. The collaboration is expected to drive core sales and prove accretive to CAH’s earnings in the long term.

The signing of a 15-year agreement with Bayer Healthcare for the contract manufacturing of Xofigo is significantly positive. In our opinion, this should help CAH leverage its expertise in the nuclear pharmacy industry to expand access to a therapeutic agent and increase the use of radiopharmaceuticals in the United States and Canada.

Strong Q1 Results: Cardinal Health exited the fiscal first quarter on a positive note, with both earnings and revenues beating the respective Zacks Consensus Estimate. The company continued to witness strong demand for its Pharmaceutical and Specialty solutions. However, sales are likely to be under pressure due to OptumRx contract expiration.

Meanwhile, CAH’s medical products, At-Home Solutions, Nuclear and Precision Health Solutions, and OptiFreight Logistics are likely to support top-line growth going forward. Improvement in segmental profit looks promising. The expansion of gross margin also bodes well. Cardinal Health also raised its fiscal 2025 guidance for earnings. The company now anticipates adjusted earnings per share (EPS) to be between $7.75 and $7.90, up from the previous guidance of $7.55-$7.70.

Factors That May Offset CAH’s Gains

Cardinal Health faces the risk of losing considerable business in case of the loss of a major customer, which, in turn, can severely impair its future revenues. In this regard, post the establishment of a generic sourcing joint venture with CVS Caremark in 2014, Cardinal Health largely depends on the former for more than 20% of its revenues.

Collectively, five of Cardinal Health’s main customers, including CVS, accounted for as much as 40% of its revenues. Meanwhile, the company’s pharmaceutical distribution contracts with OptumRx ended in June 2024. These represented 17% of total revenues in fiscal 2023. The non-renewal of the contracts is likely to adversely impact CAH’s sales in fiscal 2025.

CAH’s Estimate Trend

The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $219.02 billion, indicating a 3.5% decline from the previous year’s level.

The Zacks Consensus Estimate for adjusted EPS is pinned at $7.82, indicating a 3.9% increase from the year-ago reported numbers. The consensus estimate for adjusted EPS has remained stable in the past 30 days.

Other Stocks to Consider

Some other top-ranked stocks in the broader medical space are Masimo MASI, Accuray ARAY and Abbott Laboratories ABT.

Masimo, carrying a Zacks Rank #2 at present, has an estimated growth rate of 11.8% for 2025. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%. Its shares have risen 31.7% against the industry’s 1% decline in the past six months.

Accuray, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1200% for 2025. Its earnings missed estimates in three of the trailing four quarters and met in one, delivering an average negative surprise of 141.97%.

ARAY’s shares have gained 8.8% against the industry’s 1% decline in the past six months.

Abbott, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 10% for 2025. It delivered a trailing four-quarter average earnings surprise of 1.64%.

ABT’s shares have risen 8.5% in the past six months compared with the industry’s 7.2% growth.

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