Cardinal Health’s selloff was an overreaction. We would be buyers
Posted by Israel News | May 2, 2026 | Health | 0 |
We took a closer look at Cardinal Health’s quarterly results and earnings call following Thursday’s selloff. Our conclusion: The 4.9% decline was an overreaction and we would be buyers on Friday morning if there were no restrictions. Note: We are not allowed to trade stocks that Jim Cramer mentions on CNBC television for 72 hours. He mentioned Cardinal on Thursday, which is why we can’t make a purchase on Friday. Of course, that doesn’t stop us from telling members what we would do otherwise. When we became involved in early March, a large part of our thesis was Cardinal’s track record of delivering double-digit earnings per share growth and the fact that the company was exposed to the secular tailwinds of an aging U.S. population. In addition, Cardinal has expanded into higher-growth, higher-margin areas such as specialty pharmaceutical distribution, home delivery and non-distribution businesses, such as owning the back offices of medical practices called management services organizations (MSOs). Don’t get us wrong: Thursday’s third-quarter fiscal 2026 report wasn’t perfect, even if it missed just a drop in sales. Jim Cramer particularly wishes that management had better articulated its plans to record a $184 million goodwill impairment charge for its Navista and ION reporting unit, which is part of the MSO business. This caused some excitement surrounding the release, but CEO Jason Hollar said on the earnings call that it doesn’t change the company’s strategy in this business area. On a positive note, Cardinal remains confident that adjusted earnings in fiscal 2027 can grow within its long-term target range of 12% to 14%, Hollar said. This gives us confidence that we can trust the earnings estimates for Cardinal. And based on those estimates, Cardinal shares are getting cheaper, trading at about 16.5 times next-12-month estimates, according to FactSet. That’s down from around 20x earnings at the start of March when we acquired our stake. We’re not the only ones who think the market overreacted to Thursday’s release. A number of Wall Street analysts took a similar view. Jefferies said the Cardinal thesis was “unchanged” but acknowledged investors had high expectations through Thursday. “We defend CAH shares as we see no good reason why the stock should remain on track [Thursday’s] “Pressure lacks a massive rotational move that we believe is unwarranted,” analysts at Leerink Partners wrote to clients, adding that “momentum remains robust.” That’s why Thursday’s decline in Cardinal shares — on top of its declines in recent weeks — makes it worth buying. Healthcare stocks have fallen out of favor in this market, and we like to be opportunistic. Cardinal is a good house in a bad neighborhood. When the neighborhood becomes popular again, the good houses tend to be bought first. (Jim Cramer’s Charitable Trust is a long list of stocks. As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive 45 minutes after sending a trade alert before Jim buys or sells a stock on CNBC-TV before executing the transaction. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER, NO FIDUCTIVE OBLIGATION EXISTS OR IS GUARANTEED BY OBTAINING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.
