Linked here is a detailed quantitative analysis by Cardinal Health, Inc. (CAH). Below are some highlights from the analysis linked above:
Company description: Cardinal Health Inc. is a leading wholesaler of pharmaceuticals, medical / surgical products and related products to a wide range of healthcare customers.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
CAH trades at a premium to all four of the above ratings. Since the material book value of CAH is not meaningful, a Graham number cannot be calculated. Including the NPV MMA differential, the stock is trading at a premium of 121.2% over the calculated fair value of $ 27.76. CAH does not deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
CAH has earned two stars for 1.) and 3.) above in this section. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the past 10 years. CAH received a star for an acceptable score on at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1983 and has increased its dividend payments for 24 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 169 is below the $ 1,100 target I’m looking for for a stock that has increased dividends as long as CAH has done so. The stock’s current return of 3.17% exceeds the estimated average MMA rate of 2.74% for 20 years.
Peers: The company’s peer group includes: AmerisourceBergen Corporation (ABC) with a yield of 1.5%, McKesson Corporation (MCK) with a yield of 0.9% and Owens & Minor Inc. (OMI) with a yield of 0.0%.
Conclusion: CAH did not deserve any stars in the Fair Value category, earned two stars in the Dividend Analytical Data category and did not deserve any stars for a total of two stars in the Dividend Income vs. MMA category. This means that CAH is quantitatively referred to as 2 star weak Warehouse.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to fall to $ 34.28 before CAH’s NPV MMA differential rose to the minimum of $ 1,100 that I’m looking for on a stock with 24 years of consecutive dividend increases. At that price, the stock would generate a return of 5.7%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the targeted MMA differential of $ 1,100. The calculated rate is 6.7%. This dividend growth rate is higher than the 0.8% used in this analysis, so there is no margin of safety. CAH has one Risk assessment of 2.00, which it classifies as a medium risk stock.
CAH offers a diversified range of products and services and is well positioned as a major player in the US drug distribution industry. Intense competition in the drug distribution market and the consolidation of retail pharmacies could depress future margins. The free cash flow of 19% is well below my maximum of 60%, while the total debt of 77% is well above my maximum of 45%. CAH is currently trading well above my calculated fair value price of $ 27.76. For now, I’ll be waiting for a more convenient time to invest in CAH.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks you should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not hold a position in CAH (0.0% of my dividend growth portfolio).
On the subject of matching items:
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– Analysis of 3M Co. (MMM) dividend stocks
– Dividend stock analysis by Automatic Data Processing Inc. (ADP)
– Analysis of Nucor Corporation (NUE) dividend stocks
– Analysis of the dividend stocks of Walgreens Boots Alliance, Inc. (WBA)