The Tide Is Turning For High-Yielding Cardinal Health We've liked Cardinal Health (NYSE: CAH) for a long time. The company is a middleman for pharmacy and medical products of all manner and well-positioned in an industry growing in...

High-Yield Dividend Aristocrat Cardinal Health Is A Steal

We've liked Cardinal Health (NYSE: CAH) for a long time. The company is a middleman for pharmacy and medical products of all manner and well-positioned in an industry growing in both patient count and dollar spent per patient. The dark cloud hanging over the company's head is opioids and its role in distributing them. The good news is that a group settlement appears to be moving forward and proving some clarity for investors. Aside from that, business is strong if hampered by inflation. The key takeaway is that cash flow remains strong as well, strong enough to sustain the high 3.9% dividend yield and allow the board to authorize a new repurchase program.

Cardinal Health's board authorized a new repurchase program worth $3 billion over $3 years. This is equal to 21% of the stocks market capitalization and will surely be a boost to share prices in that time. As for the dividend, the company is paying out only 33% of its earnings and keeping the increases to the low-single-digits so we see a very high likelihood for the 26th consecutive distribution increase to be declared early next calendar year.

Cardinal Health Reports Mixed Quarter

Cardinal Health had a good quarter if one mixed in relation to the analyst's estimates. The company reported $43.97 billion in consolidated revenue which is up 12.% over last year and beat the consensus by 510 basis points but serious margin pressure cut into the bottom line. The revenue strength was driven by a 13% increase in pharma sales that were underpinned by COVID-19 products and a 5% increase in medical sales.

Moving on to the margin, the pharma segment profit increased by 1% but was offset by a decline in the medical segment. Medical segment profit fell 46% on rising supply chain costs that include labor and shipping. Moving down to the bottom line, the $1.94 in GAAP and $1.29 in adjusted earnings both missed by $0.06 despite the revenue strength.

Looking forward, the company is expecting revenue strength to continue and is taking steps to mitigate margin decline (cough cough higher prices on some products) but it may not be enough to keep investors happy. The company did not give specific guidance for revenue but is expecting adjusted EPS in the range of $5.60 to $5.90 verse the consensus $5.80. This range opens the door for outperformance but just barely and assumes inflationary pressures won't become worse than forecast.

Is A Shift In Sentiment On The Way For Cardinal Health?

The analysts rate Cardinal Health a Hold but it's a weak Hold leaning toward Sell and we don't see that changing very soon. The Q3 results are good and point to revenue growth but earnings are at risk from inflation. If anything, we expect to see most analysts reaffirming their ratings and price targets leaving the MarketBeat.com consensus price target relatively unchanged. The consensus price is just over $58 and implies about 20% of upside for the stock.

The Technical Analysis: Cardinal Health Near Rock Bottom Prices

Even without a major catalyst to drive it, shares of Cardinal Health are attractive because of the dividend and valuation. Trading at 8X earnings and just above a major support level, we view Cardinal Health as very attractive for income portfolios. Price action may move down to test support at the $46.00 level but we would expect to see buyers (including the company itself) step in to scoop up the shares.