Cardinal Health (CAH) has surged to a new 52-week high of $136.44 per share, reflecting a robust ascent that defies the notion of “too late to buy.” With a market cap of $33 billion, this healthcare stalwart offers a blend of resilience and growth that beckons long-term investors.
Beneath its climb lie industry tailwinds, company-specific strengths, and a reliable dividend, all converging to affirm CAH as a stock worth owning, even at its peak. .
The healthcare distribution and services sector is thriving amid structural shifts. The Centers for Medicare & Medicaid Services says U.S. healthcare spending hit $5 trillion in 2024, representing 17.7% of the gross domestic product, with an average spending of $15,074 per person. It is projected to grow 5.6% annually through 2032, driven by an aging population with 20% of Americans being over 65 by 2030.
This demographic wave demands more pharmaceuticals and medical supplies, areas where CAH excels as a top distributor. Further, the shift to generics boosts margins for distributors like CAH, who thrive on high-volume, low-cost drugs. Some 65% of prescriptions in 2024 were generics. Meanwhile, hospital supply chain woes, elevate CAH’s role in streamlining logistics.
In short, healthcare is essentially a recession-proof sector, promising sustained demand for CAH’s business.
Cardinal Health’s internal growth engine remains intact. Although its fiscal second-quarter results last month showed revenue declining 4% to $55.3 billion the drop was due to the loss of a contract from a large customer expiring, which investors knew going in. What keeps Cardinal flying is its pharmaceutical products and specialty solutions segments.
Sales of branded, generic, and specialty drug pharmaceutical sales fell 4% to $50.8 billion, but profits jumped 7% to $531 million. The lost customer was a low margin business, even if it contributed to more sales.
Cardinal Health is one of three of the top domestic drugs wholesalers in the U.S. with over $200 billion in annual drug distribution sales. CAH supplies roughly one quarter of the overall market. The other two are Cencora (COR) and McKesson (MCK), with the three serving as an oligopoly supplying over 90% the overall market.
CAH’s supply chain serves 29,000 pharmacies and 90% of U.S. hospitals, while its OptiFreight logistics arm cut delivery costs 8% in 2024. Strategic moves, like the $1.2 billion Specialty Networks acquisition in 2023 and its recently completed acquisition of cIntegrated Oncology Network in December, deepen its oncology and physician practice reach.
Despite CAH stock hitting a new record high, it tradess at just 15 times estimated earnings and just a tiny fraction of its sales. Cardinal Health is a value play with a growth kicker. The drug distributor is not hitting a ceiling, just taxiing up to the launchpad.
But it is Cardinal Health’s dividend that seals the deal. At $2.02 annually, it yields 1.1% annually and CAH has a 35-year track record of raising the payout, which makes it a Dividend Aristocrat. With a 22% free cash flow payout ratio, there is plenty of room to grow.
In 2022’s market rout, Cardinal dividend held firm while growth stocks slashed payouts, underscoring its role as a buffer. Over a decade, reinvested dividends could turn $10,000 into $34,000 at 11% total return, versus $28,000 without. CAH stock is not a yield chase, but rather a compounding engine, enhancing its allure as a long-term buy-and-hold stock.
Healthcare’s tailwinds, including an aging nation, generics boom, and supply chain fixes, promise years of continued growth. CAH’s execution of smart acquisitions that turn into profits, builds on its reliable revenue growth.
While Cardinal Health’s dividend is modest, the drug distributor keeps it growing, adding a layer of safety and reward for shareholders worried about a shaky market.
There are risks, of course. Drug price reforms could pinch profits, but with $3.8 billion in cash and equivalents in the bank and a defensive moat that it is one of three dominant players, eases those fears. A $10,000 investment in CAH stock 10 years ago would have doubled in value with dividends reinvested. There is no reason it can’t wash-rinse-repeat this process over the next 10 years.
This 52-week high is no peak, t’s a stepping stone CAH is a buy for the patient investor, not the panicked.
