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Cardinal Health (CAH) to Divest Assets to Shanghai Pharma

Zacks

Cardinal Health Inc. CAH recently agreed to sell Cardinal Health China business to Shanghai Pharmaceuticals Holding Co. Ltd. for $1.2 billion. The sale includes Cardinal Health's pharmaceutical and medical products distribution business in China.

The company’s asset disposal will help streamline its Chinese operations. The liability of employees, infrastructure and various systems and processes will be transferred to Shanghai Pharma upon closing of the transaction.

Share Price Movement

Cardinal Health’s price movement in the past six months has been unfavorable. The company’s shares have lost almost 14.1% compared with the industry's gain of 2.2%. The current level is also lower than the S&P 500’s rally of 4.8%.


Coming back to the news, the divestiture does not include Cardinal Health's remaining businesses in China. These include Cordis, the company’s recently acquired Patient Recovery business, and its medical sourcing team.

Cardinal Health, headquartered in Dublin, OH, is a national drug distributor and provider of services to pharmacies, healthcare providers and manufacturers.

Recently, Cardinal Health reported solid first-quarter fiscal 2017 (ending Sep 30, 2017) numbers, courtesy of a stable performance by the Medical segment. An encouraging fiscal 2018 guidance also instills our confidence in the stock. Meanwhile, the company is banking on strategic buyouts, joint ventures and supply agreements to drive growth.

Although the Pharmaceutical segment witnessed strong growth in the Specialty business and gained a huge number of Pharmaceutical Distribution customers, profits at the segment were hurt by generic pharmaceutical pricing. Increasing generic pricing pressure is a major headwind. Intense competition and customer concentration are other bottlenecks. A sluggish macroeconomic scenario and tough product-pricing environment are likely to impede growth.

Zacks Rank & Key Picks

Cardinal Health carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the health care sector are Sucampo Pharmaceuticals, Inc. SCMP, Corcept Therapeutics Incorporated CORT and Achillion Pharmaceuticals, Inc. ACHN. While Sucampo sports a Zacks Rank #1 (Strong Buy), Corcept and Achillion carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sucampo’s earnings per share estimates have increased from $1.01 to $1.11 for 2017 and from $1.06 to $1.21 for 2018 in the last 30 days. The company delivered a positive earnings surprise in three of the trailing four quarters with an average beat of 15.63%.

Corcept’s earnings per share estimates have moved up from 45 cents to 48 cents for 2017 and from 77 cents to 80 cents for 2018 in the last 60 days. The company delivered a positive earnings surprise in two of the trailing four quarters with an average beat of 14.32%. The company’s shares have rallied 144.5% year to date.

Achillion’s loss estimates per share have narrowed from 65 cents to 63 cents for 2017 and from 74 cents to 67 cents for 2017 in the last 30 days. The company delivered positive earnings surprise in two of the trailing four quarters with an average beat of 4.51%.

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