Cardinal Health’s Price Target From RBC Cut to $56 From $61

Cardinal Health (CAH) received a price-target reduction from RBC Capital Markets after the health-care services and products company reported fiscal Q4 results above analysts’ expectations Monday but the midpoint of its guidance range for fiscal 2019 adjusted earnings per share missed analysts’ mean estimate.

The new price target from RBC is $56 per share, down from $61. The stock closed Monday’s session at $50.05, down 0.5% on the day, and were up 1.1% in recent pre-market trade at $50.60. RBC kept its investment rating on the stock at sector perform.

In a note to clients, RBC said while Cardinal Health’s Q4 adjusted EPS topped the Street view, the firm sees the beat as being due to a lower-than-expected effective tax rate. It noted the results “missed at the operating line due to weak margins in both segments.”

The firm said its lower price target on Cardinal Health’s stock comes as the firm rolled forward its valuation to being based on its estimate for calendar 2019 EPS and lowered its valuation multiple on the stock by one turn “to reflect the increasingly limited visibility in the drug-supply chain.”

For its fiscal Q4 ended June 30, Cardinal Health reported adjusted EPS of $1.01, down from $1.31 a year earlier but above analysts’ mean estimate according to Capital IQ of $0.93. Revenue rose to $35.35 billion from $32.97 billion a year earlier, topping analysts’ mean estimate of $34.38 billion.

For fiscal 2019, the company forecast adjusted EPS of $4.90 to $5.15. The midpoint of that range, $5.03, was below analysts’ mean estimate at the time of $5.09; the Street consensus estimate has since moved down to $5.04.

RBC lowered its estimate for Cardinal Health’s fiscal 2019 adjusted EPS to $4.87 from $4.95, citing “slower growth in pharmaceutical and medical segments and lower [operating] margin in the medical segment, partially offset by lower [selling, general and administrative expenses] estimate related to the company’s cost-cutting initiative, lower tax rate, and a lower share count.”

The firm added: “We note our EPS estimate is below the low end of the company’s guidance as we are making very conservative assumptions for both brand and generic drug pricing over the next 12 months.”