Cardinal Health (CAH)hasn’t had the strongest following on Wall Street. Despite beating earnings expectationsin six straight quarters coming into Tuesday’s release of fiscal fourth-quarter results – whenstretched the streak to seven in a row -three of the 10 analysts with ”buys”lowered their rating on the stock, and two new ”underperform” ratings have cropped up. Those ratings changes have been effected in the lasttwo months alone.
It’s a recognition of the transformational elements of the Cardinal Health story that analysts have been somewhat dubious of the outlook. The company announced in March it planned to spin off its clinical medical products unit, which makes medical equipment, such as intravenousdelivery systems, and items such as hospital gowns.
It’s a part of the business that has the most intrigue for analysts – the growth prospects for its medical products unitprospectively could outstrip its core drug-distribution business – butthat also has labored. Hospital spending has been constrained. Analysts aren’t convinced what multiple to apply to the spin-off, to be known as CareFusion when the spin is completed this summer.
Cardinal offered some encouraging guidance for CareFusion along with the fourth-quarter earnings statement, saying it sees $1.10 to $1.20 for its fiscal year. Still, the operational performance of the clinical medical products unit proved disappointing, showing a decline of as much as 32% in operating profits, according to analysts, and missing some estimates.
In addition, the back-and-forth on the outlook for its core drug distribution businesscreated some dislocation. Back in June, Cardinal guided to the low end of its range of estimates for the core business, which would have implied that the stand-alone Cardinaloperations would have generated earnings of $1.87 to $1.91. With its fourth-quarter outlook, it boosted that to $1.90 to $2.00.
The stock has m! ovedhigh er in Tuesday’s session, rising about 3% in the session, buthasn’t made much progress versus the broad market since the bottom back in March, when Cardinal traded at$27 a share.
