Cardinal Health: Summer choppiness

Posted Aug 17th 2009 6:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

It's a difficult call, but I'm Reiterating my Buy rating for Cardinal Health (NYSE: CAH), first recommended on April 21, 2009 at a price of $33.52.

Cardinal Health has meandered since April, despite generally favorable investor reviews of CAH's plan to spin-off its clinical medical products segment in mid-2009, to be called CareFusion Corp., allowing Cardinal to focus on revitalizing its health care supply chain services business, which recently returned to profitability.

Most of the sideways stock action can be attributed to negative synergies, but the key factor moving forward will be whether its health care supply chain services business registers solid revenue gains in 2010. If it doesn't show signs of improvement by late 2009/early 2010, I'll recommend selling the shares, despite any investor benefits from a clinical medical products spin-off: the spin-off will be analyzed as a separate investment, later, after the transaction closes. The First Call FY2009/FY2010 EPS estimates for CAH are $3.50 to $1.91.

Stock Analysis: Cardinal Health is a moderate-risk stock. If you've already purchased the company's shares, hold them. Under any circumstance, don't buy more than 25% of your CAH position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $26.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: CAH, Cardinal Health