Cardinal Health Inc (CAH)

Conclusion

Cardinal Health is a US healthcare company that distributes pharmaceuticals and medical products to hospitals, pharmacies and other providers, and makes some medical supplies of its own. At 274.29 USD on 2026-11-09, its market capitalisation is 63.4 billion USD.

The verdict is fair. The P/E of 34.87 sits 24.4% above its ten-year median of 28.03, and EV/EBITDA of 18.73 sits 28.6% above its median of 14.56. The DCF gives 463.13 USD per share at a discount rate of 8.87%. The fair value band runs from 264.90 to 397.35 USD with a midpoint of 331.13 USD, giving a margin of safety of 20.7% at the current price. The reverse DCF implies growth of 0.68% a year, while revenue actually grew 9.4% a year over five years and free cash flow per share grew 22.6%.

The strongest numbers are the Altman Z-score of 5.03, free cash flow conversion of 4.18x over five years, and a Piotroski score of 8 out of 9. The weakest are the operating margin of 1.05%, the current ratio of 0.88 and interest coverage of 7.6x. A thin operating margin leaves little room for error if the growth in the price fails to arrive.

Financial health

Financial health is green, held up by an Altman Z-score of 5.03 in the safe zone and net debt to EBITDA of 0.99x, and held back only by a current ratio of 0.88 and a quick ratio of 0.43. The Altman model was designed for manufacturers, so its zone is only a rough guide for a distributor. Insolvency risk: low, about 1.7% by the estimate of the Ohlson model over one to two years. Interest coverage is 7.6x. Debt to equity is not available. The company reports negative shareholders' equity, so leverage ratios based on equity should be read with care.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 2.70x on a trailing basis and 4.18x over five years, and by an accrual ratio of -6.3%, which means reported earnings are backed by cash. Stock-based compensation is 0.15% of revenue, and free cash flow after it is 4.52 billion USD on a trailing basis. The share count fell at an annual rate of 4.2% over five years, which points to buybacks. The Piotroski score is 8 out of 9. The Beneish M-score is not available. The company beat earnings estimates in all eight of the last eight quarters, with an average surprise of 11.9%. Analysts raised the current-year estimate by 7.7% over the last 90 days and the next-year estimate by 5.2%.

Profitability

Profitability is yellow. Return on invested capital of 388.4% stands against a weighted cost of capital of 8.26%, and the given gap between them is 380.2%. The five-year median return on invested capital is 67.5%. The operating margin of 1.05% is above its ten-year median of 0.46%, but the gross margin of 3.90% is slightly below its median of 4.01%. The net margin of 0.71% compares with a median of 0.38%. The DuPont split shows that the return comes from volume rather than margin, with a net margin of 0.67% and an asset turnover of 4.44x. Return on equity is not available because equity is negative, so the high return on invested capital should be read with that in mind.

Growth

Growth is green. Revenue compounded at 7.4% over three years, 9.4% over five years and 7.7% over ten years, and grew in nine of the last ten years. Earnings per share compounded at 79.1% over three years, 28.3% over five years and 5.3% over ten years, so the recent rise is much faster than the long-run pace. Free cash flow per share compounded at 28.5% over three years, 22.6% over five years and 9.7% over ten years. Analysts expect earnings per share to grow 9.9% next year.

Valuation

Valuation is yellow, and the verdict is fair. Against their ten-year medians, the P/E of 34.87 carries a premium of 24.4% over 28.03, EV/EBITDA of 18.73 a premium of 28.6% over 14.56, the price to free cash flow of 12.94 a premium of 45.6% over 8.89, and the price to sales of 0.246 a premium of 112.4% over 0.1158. The DCF gives 463.13 USD per share at a discount rate of 8.87%, and the terminal value makes up 58.6% of it. The fair value from historical multiples is 199.12 USD. The fair value band runs from 264.90 to 397.35 USD with a midpoint of 331.13 USD. These are estimates built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The reverse DCF implies 0.68% growth, against 9.4% revenue growth over five years. The dividend yield is 0.77% and the payout on free cash flow is 9.96%.

Risks

The operating margin of 1.05% is the main weakness: a small fall in margin would hit profit sharply. A current ratio of 0.88 and a quick ratio of 0.43 mean short-term obligations are covered only narrowly by liquid assets, and interest coverage of 7.6x leaves less room if borrowing costs rise. The premiums to the historical multiples, especially the 112.4% on price to sales, depend on the company keeping its recent growth. The reverse DCF shows the price assumes far less growth than the company has delivered, so a slowdown in margins or growth would weaken the case quickly. Debt to equity, return on equity and the Beneish M-score are not available. The analysis has no debt maturity schedule and no revenue split by segment, so it cannot judge refinancing risk or which business drives the results.