Cardinal Health, Inc. (CAH) is slated to report second-quarter fiscal 2015 results before the opening bell on Jan 29. In the last reported quarter, this Dublin, OH-based company recorded a positive earnings surprise of 3.09% while the average earnings surprise over the past four quarters is 3.75%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
In our opinion, this healthcare services company is banking on strategic buyouts, joint ventures and supply agreements to drive growth in the coming quarters. We believe that the Red Oak sourcing venture with CVS Health Corp. presents a significant growth opportunity.
Meanwhile, Cardinal Health has completed the acquisitions of Innovative Therapies and Emerge Medical in the last quarter which are expected to prove accretive. In a separate development, Cardinal Health and Henry Schein (HSIC) have announced the signing of a new agreement under which the latter will purchase Cardinal Health’s medical supplies for physician practices. The collaboration is expected to drive core sales for both the distributors.
Moreover, we believe that Cardinal Health’s innovative product line will continue to drive top-line growth. New and existing customers as well as continued growth in China are added positives.
However, the company’s over-dependence on CVS Health for revenues is a deterrent, in our opinion. Furthermore, Cardinal Health faces stiff competition from peers in each of its business segments, which is a major headwind.
Earnings Whispers
Our proven model does not conclusively show that Cardinal Health is likely to beat earnings this quarter as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Cardinal Health has a -0.90% ESP. That is because the Most Accurate estimate stands at $1.10 per share, which is lower than the Zacks Consensus Estimate of $1.11.
Zacks Rank: Cardinal Health carries a Zacks Rank #2 (Buy) which increases the predictive power of ESP; but when combined with an ESP of -0.90%, it makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat:
AbbVie (ABBV) with an Earnings ESP of +1.18% and a Zacks Rank #2 (Buy).
Hologic (HOLX) with an Earnings ESP of +2.78% and a Zacks Rank #2.
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