Cardinal Health Inc (CAH) generates larger amounts of free cash after refocusing its efforts on its core hospital supply business and diversifying away from its pharmaceutical distribution business, says John P. DeGulis, Partner and Portfolio Manager at Sound Shore Management, Inc.
“Cardinal is now back to growing, increasing margin, taking market share while continuing to diversify their hospital supply business,” he said. “They are also growing into the home supply business, which is a big growth market, as you might imagine.”
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DeGulis says the balance sheet at CAH was underlevered, and the dividend has grown above the market at 3%. He expects the dividend yield to increase, and he says management changes are beginning to translate in stock price increases.
“The stock has performed well over the last couple of years, particularly well this year where it’s up over 60%, and the market is starting to reflect a lot of the changes that Mr. Barrett and his team have instituted at CAH,” DeGulis said.
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