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Why Cardinal Health Is Down Nearly 13% Today

By James Brumley – Aug 5, 2021 at 12:54PM

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Investors are reading a lot (perhaps too much) into an accounting decision made in the early days of the COVID-19 pandemic.

What happened

Shares of healthcare supply outfit Cardinal Health (CAH 2.04%) are down 12.9% as of midday Thursday after falling short of earnings estimates for its fiscal fourth quarter.

So what

During the three-month stretch ending in June, Cardinal Health turned $42.6 billion in revenue into per-share operating earnings of $0.77. Sales improved by 16% year over year while operating profits tumbled by 26%. Worse, the bottom line missed estimates of $1.20 per share even though the top line easily topped a consensus of $40.4 billion. An accounting adjustment linked to the pandemic is responsible for the bulk of the earnings miss; operating cash flow of $665 million was up 177% from the year-ago quarter.

Hospital staff gathering supplies.

Image source: Getty Images.

The company's guidance for the fiscal year now underway, however, is still seemingly lackluster. Its per-share profit outlook range of $5.60 to $5.90 is well under the consensus of $6.19. The company did not offer any revenue guidance for fiscal 2022, although analysts are calling for revenue growth of 4.4%.

Now what

The knee-jerk response to the news is understandable, but unnecessary. Cardinal stock had already underperformed of late, essentially even with its pre-COVID-19 peak as of Wednesday's close. The weakness indicated investors had already priced in pandemic-related challenges for the healthcare outfit. Thursday's drubbing double-punishes the company for measures taken during a pandemic that forced all companies to only make guesses as to what the future may or may not hold.

This, in addition to the fact that today's steep sell-off leaves shares at a single-digit P/E ratio -- and that's with the worst-case scenario -- makes Thursday's plunge a pretty good entry opportunity for investors looking at the long term.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Cardinal Health Stock Quote
Cardinal Health
$80.88 (2.04%) $1.62

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