For a quick overview of the company, Cardinal Health is primarily a drug distribution company. That means it purchases pharmaceuticals and health-care products from companies, such as its largest supplier, Pfizer
In a nutshell, the drug distribution industry, including peers such as McKesson
The long-term goals introduced by Cardinal represent a sort of wish list for Foolish investment principles, including strong cash flow generation and a clear financial direction. The company's "long-term goals," according to management, include annual sales growth of 8%-10%, earnings growth of 12%-15%, and a return on equity of 15%-20%. It also targets operating cash flow greater than 100% of net income, implying that earnings are of high quality and a good proxy for cash flow. Finally, Cardinal is looking to return 50% of operating cash flow to shareholders in the form of share repurchases or dividends over the long term, and 2007 guidance echoes the above goals. Very shareholder-friendly, I must say, but now the company has to deliver.
If Cardinal Health can meet its long-term goals, then its stock should represent a solid investment and you should be able to buy and hold for an extended period. A final Foolish investment maxim calls for a strong historical track record. Before the recent turmoil in the drug distribution industry, Cardinal's performance was as strong as any company in the market as it posted strong free cash flow and enviable growth and stock returns. But industry dynamics changed, and the company became embroiled in an SEC accounting investigation and needed to restate certain financial statements going back to 2000. The restatements were not major, and Cardinal disciplined or terminated certain employees, satisfied SEC inquiries, and has worked to improve its corporate governance.
Cardinal Health has an impressive long-term track record and continued solid free cash flow generation, and appears to have held steady through accounting investigations and industry transition. Plus, it just outlined a roadmap for investors to track as Cardinal pursues its long-term operating goals.
Merck is a Motley Fool Income Investor pick, while Pfizer is a Motley Fool Inside Value selection. Take the newsletter that best fits your investing style for a 30-day free spin.
Fool contributor Ryan Fuhrmann is long shares of Cardinal, Pfizer, and Walgreen but has no financial interest in any other company mentioned. The Fool has an ironclad, flu-resistant disclosure policy. Feel free to email him with feedback or to discuss the company further.
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