We upgrade our rating on Cardinal Health, Inc. (CAH) to Outperform. Earnings for the fourth quarter narrowly beat the Zacks Consensus Estimate. Cardinal's size and diversity partly insulate it from economic cycles. Its generics business continues to grow at a healthy pace.
Moreover, Cardinal's Pharmaceutical and Medical segments have revamped operations. The company continues to nurture its specialty platforms and engage in periodic tuck-in acquisitions. Although client and supplier concentration and reliance on group purchasing organizations remain areas of concern, the same is partly mitigated through long-term contracts.
While margins are thin in the bulk Pharma business, the business mix is evolving in favor of the non-bulk segment. Robust cash flow, high cash balance and revolving credit facility bestow liquidity for share repurchase and acquisitions.
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