Cardinal Health, Inc. (CAH): what the price assumes

In the published model solve dated 2026-Q2, anchored at $234.55, Cardinal Health, Inc. (CAH) is priced for +6.7% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/CAH

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7.4% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

The price is supported by earnings-power value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.9%); the inversion above states its own rate.

Per-Model Detail (n=2)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Bullet Takeaways

• Capital allocation is the clearest signal in this file: the share count has fallen about 4.2% a year over the four years to December 2025 while the payout crept higher, with the FY2025 10-K reporting that We paid cash dividends per common share of $2.02, $2.00, and $1.98 in fiscal 2025, 2024, and 2023, respectively.
• Customer concentration is not a hypothetical risk here, because it has already happened once: the 10-K discloses that Sales to OptumRx generated 17 percent of our consolidated revenue in fiscal 2024 before those distribution contracts expired.
• Fiscal fourth-quarter and full-year results are due August 11, 2026, with a newly agreed 360 million dollar purchase of AdaptHealth's Diabetes Health business and of Strive Medical still to be absorbed.

Bull Case

Follow where the cash goes and the management view becomes legible without anyone having to say it. Over the four years to December 2025 the share count came down about 4.2% a year, which retires roughly one share in six. The dividend moved too, but barely: the FY2025 10-K records that We paid cash dividends per common share of $2.02, $2.00, and $1.98 in fiscal 2025, 2024, and 2023, respectively, and in May 2026 the board lifted the quarterly rate to $0.5158. A treasury that raises the dividend by pennies while shrinking the count by percent is telling you where it thinks the better purchase is.

It can afford both because of what pharmaceutical distribution actually is as a cash machine. Product moves through on thin markups, but customers pay before suppliers must be paid, so the working capital works in the company's favor rather than against it. Interest is covered about 9.6 times by operating income, and the business is not consuming cash. That combination is what allows a company earning roughly a penny of operating profit per revenue dollar to still throw off billions.

The strongest single piece of evidence for the bull case is a stress test the company has already been through. In April 2024 it announced that its pharmaceutical distribution contracts with OptumRx would expire that June, and the 10-K states the size of what walked out the door: Sales to OptumRx generated 17 percent of our consolidated revenue in fiscal 2024. The following year the segment shrank exactly as you would expect, with the filing noting that Pharma segment revenue for fiscal 2025 decreased 3 percent to $204.6 billion from the prior year, primarily due to the expiration of the OptumRx contracts, partially offset by branded and specialty pharmaceutical sales growth from existing and new customers. Trailing revenue is now growing about 10.4% again. Losing a customer worth a sixth of revenue and rebuilding past it inside two years is the difference between a business that is a set of contracts and a business that is infrastructure.

Where the profit comes from is worth understanding, because it is not the obvious place. Branded pharmaceuticals move largely on fee-based distribution services agreements with manufacturers rather than on markup. The margin engine is the generics program, which the 10-K describes as running through product launches, customer volumes, pricing changes and the Red Oak Sourcing venture with CVS Health. That is a purchasing scale advantage, and purchasing scale in generics is not something a new entrant assembles quickly.

The smaller segments are where the actual margins live. Medical products, nuclear, home solutions and freight logistics together make up under a tenth of revenue, and they compete in categories where operators earn real margins: BDX runs a 10.4% operating margin, STE 18.6%, MMSI 12.2%. Growing that end of the mix does considerably more for profit than the same growth in distribution volume would, which is exactly what the July agreement to buy AdaptHealth's Diabetes Health business and Strive Medical is aimed at.

Against all of that, the price asks for about 23 times company-wide operating income and embeds operating growth of roughly 5.1% a year over five years. That rate is inside what the business has recently delivered. Management has also raised its guidance on 34 separate occasions since 2006 against four cuts, which is a long record of setting the bar where it can clear it.

Bear Case

Here is the fact a holder has to sit with: this company keeps about one cent of operating profit out of every dollar of revenue it handles. That is not a criticism of management, it is what wholesale drug distribution is. But it means there is no cushion anywhere. A tenth of a percentage point of gross margin across a revenue base of $244.67 billion is worth roughly a quarter of a billion dollars, which is close to a tenth of the entire operating profit. Volume, mix and purchasing terms have to go right continuously, and the market is paying about 23 times that penny.

The people on the other side of those terms are consolidating. The FY2025 10-K discloses that Vizient and Premier are the two largest group purchasing relationships and that Sales to members of these two GPOs collectively accounted for 27 percent, 16 percent, and 15 percent of revenue across the three reported years. That is a concentration that nearly doubled in two years. And the company has already demonstrated what happens when a large buyer leaves: OptumRx was 17 percent of consolidated revenue in fiscal 2024, and when those contracts expired there was no pricing lever available to offset the loss, only the slower work of replacing the volume.

The supply side is concentrated too. The 10-K notes that the largest supplier's products accounted for approximately 9 percent of revenue. Squeezed between consolidating customers and concentrated manufacturers, a distributor's margin is negotiated rather than earned, and neither counterparty is getting smaller.

The legal file does not close either. Beyond the distributor opioid settlement's continuing injunctive obligations covering governance, personnel independence in controlled-substance monitoring and customer due diligence, the company remains a defendant in the generic pharmaceutical pricing antitrust class action brought against distributors in December 2019, and carries accruals for IVC filter product liability including $49 million held in a qualified settlement fund. None of these individually threatens the enterprise. Collectively they are a permanent tax on management attention and on cash.

Now the part that should give a buyer pause. The quote sits roughly 60% above where the peer-multiple approaches land and only about 6% above where the cash-yield methods land. In other words, almost the entire defense of the current price rests on capitalizing free cash flow, and free cash flow is the one number in a distribution business that is least reliable year to year. The 10-K says so itself: changes in working capital can vary significantly depending on factors such as the timing of customer payments, inventory purchases, payments to vendors, and tax payments. Capitalize a timing-sensitive number in perpetuity and you have built the valuation on the least stable input available.

The multiple is also in the upper half of its peer range while the underlying economics are the thinnest of the group. MCK turns 1.54% of revenue into operating profit on $403.43 billion of sales growing 12.4%; COR turns 0.85% on $328.68 billion growing 5.9%. The subject sits between them on margin and pays a fuller multiple than the comparison supports. If the 5.1% annual operating growth the market is paying for does not arrive, there is no asset base and no earnings-power method waiting underneath to catch the price.

Valuation

A penny of operating profit per revenue dollar is where any honest read of this company starts. On trailing figures the operating margin is about 1.1%, and at $228.06 the market is capitalizing that profit stream at roughly 23 times. The assumption embedded in that multiple is company-wide operating growth of about 5.1% a year across a five-year stage, which is inside what the business has recently delivered. The rate is not the stretch. The stretch is that it has to keep going.

The methods available here are unusually few, and that itself is informative. Neither the asset-based nor the projection-driven approaches produce a usable read on a business with this balance-sheet shape, which leaves two. The cash-yield methods land close to the quote, with the price about 6% above them. The peer-multiple approaches land far lower still, the quote carrying a premium over them of well more than half. So the price is defended by what the business generates in cash and contradicted by what comparable distributors fetch on their earnings.

That makes one calculation load-bearing, and it is worth stating plainly. Take about 5.5 billion dollars of annual free cash flow, credit it with no growth at all, and capitalize it at a 9.3% required return, and the result lands within a couple of percent of today's quote. It is a clean, conservative construction. Its weakness is the input: in distribution, the free cash flow figure moves with the timing of customer receipts and vendor payments as much as with profitability, so a single year's number is a noisy anchor for a perpetuity.

What has to be true is therefore narrower than it looks. No expansion in the operating margin is needed, and no re-rating either. The requirement is simply that operating profit compounds at roughly 5.1% a year, sustained, on unchanged penny-per-dollar economics. In this industry that comes from three places: branded and specialty volume, the generics purchasing program, and mix shift toward the smaller non-distribution segments. The July agreement to buy a diabetes supply business and Strive Medical is a direct attempt at the third.

Cohort position sharpens the question rather than settling it. MCK operates on a 1.54% operating margin with revenue growing 12.4%; COR on 0.85% growing 5.9%. On the medical products side of the business the comparison set looks nothing alike, with BDX at a 10.4% operating margin and STE at 18.6%. A company that draws more than nine tenths of its revenue from distribution while its profit leans disproportionately on the rest is genuinely hard to place against either group, and the multiple currently sits in the upper half of the range.

The balance sheet is not the constraint. Operating income covers interest about 9.6 times, liquid assets stand at $2.777 billion, the company is not burning cash, and the share count has been shrinking about 4.2% a year since December 2021. What that buys is time and optionality rather than protection: in a business earning a penny per revenue dollar, the downside does not arrive through the balance sheet. It arrives through a customer contract not being renewed, and this company has already shown the market what that looks like.

Catalysts

The next scheduled event is the year-end print. Fiscal fourth-quarter and full-year results are set for August 11, 2026. Because the fiscal year ends in June, this is the report that resets the base for everything downstream, and the line worth watching is the profit contribution from the non-distribution segments rather than the consolidated revenue number, which is dominated by pass-through volume.

Ahead of it, the company agreed on July 20, 2026 to acquire AdaptHealth's Diabetes Health business and, in its entirety, Strive Medical, for 360 million dollars. Both sit in the home-based patient supply category rather than in wholesale distribution, which is consistent with a strategy of buying margin rather than buying volume. At that size it will not move consolidated revenue perceptibly; whether it moves segment profit is the thing to check.

The sell side moved up into the print. Citi raised its target to $265 from $245 on July 24 and Mizuho to $240 from $235 on July 23. Both sit above the current quote, and the gap is explicable: those targets credit the forward growth in the higher-margin segments, whereas the trailing peer-multiple comparisons in this report price the company against distributors on what they earn today. The board also raised the quarterly dividend to $0.5158 in May, continuing the pattern of small payout increases alongside a much faster reduction in share count.

Peer Cohorts (Per Segment, With Filing Citations)

Pharmaceutical and Specialty Solutions / Other (reported)

• MCK (McKESSON CORPORATION)
• FY2025 10-K: …enable its customers to drive greater efficiencies in their day-to-day operations, effectively managing their inventories and complying with complex government regulations. Solutions include McKesson Pharmacy Systems, MacroHelix, and Supply Logix, all of which provide innovative software technology and services that…
• FY2025 10-K: …regardless of their pharmacy affiliation. 5 Table of Contents Item 1 Index McKESSON CORPORATION Institutional Healthcare Providers: At McKesson, we are relentless in our pursuit of opportunities to achieve operational efficiency, reduce waste, and improve the financial performance of our customers so they can achieve…
• COR (CENCORA, INC.)
• FY2025 10-K: …and various other products to customers in both the companion animal and production animal markets. It also offers its customers a variety of value-added services, including its e-commerce platform, technology management systems, pharmacy fulfillment, inventory management system, equipment procurement consultation,…
• FY2025 10-K: …research and development of biotechnology and other specialty pharmaceutical drugs will provide opportunities for the continued growth of our specialty pharmaceuticals business. Use of Generic and Biosimilar Pharmaceuticals. A number of patents for widely used brand-name pharmaceutical products will continue to…

Global Medical Products and Distribution (reported)

• BDX (BECTON DICKINSON & CO)
• FY2025 10-K: …the prices customers are willing to pay for those products in a particular jurisdiction. In addition, third-party payers are increasingly challenging the reimbursement models and prices charged for medical products and services. Any changes to the reimbursement landscape, or adverse decisions relating to our products…
• FY2025 10-K: Solutions, and Biosciences units, some contracts also contain minimum purchase commitments of reagents or other consumables and the future sales of these consumables represent additional unsatisfied performance obligations of the Company. The revenue attributable to the unsatisfied minimum purchase commitment-related…
• BAX (BAXTER INTERNATIONAL INC)
• FY2025 10-K: …Products We currently manage our global operations based on three reportable segments: Medical Products & Therapies, Healthcare Systems & Technologies and Pharmaceuticals. The Medical Products & Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition…
• FY2025 10-K: …Africa, Latin America and Asia (except for Japan). 2 Rest of world includes sales from our operations in Western Europe, Canada, Japan, Australia and New Zealand. 3 Percent change in net sales at operational sales growth is a non-GAAP financial measure. See the section entitled "Non-GAAP Financial Measures" for…
• ICUI (ICU MEDICAL INC/DE)
• FY2025 10-K: …of our products, including demand for more environmentally friendly products and focus on using materials of concern, access to distribution channels, patent protection and pricing. The ability to compete effectively depends on our ability to differentiate our products based on these factors, as well as our ability…
• FY2025 10-K: …reliability, patent protection, ease of use and the pricing of our products, in addition to the access to distribution channels. We encounter significant competition in this market both from global, large, established medical device manufacturers and from smaller companies. We compete with products and systems…
• MMSI (MERIT MEDICAL SYSTEMS INC)
• FY2025 10-K: …as well as embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, breast cancer localization and guidance, biopsy, and interventional oncology and spine devices. Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding…
• FY2025 10-K: …market medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of four product categories: peripheral intervention, cardiac intervention, custom procedural…
• STE (STERIS plc)
• FY2025 10-K: …to outsourced instrument reprocessing services. In addition, our procedural products also include endoscopy accessories, instruments, and capital equipment infrastructure used primarily in operating rooms, ambulatory surgery centers, endoscopy suites, and other procedural areas. Our AST segment supports medical…
• FY2025 10-K: …maintain, upgrade, repair, and troubleshoot capital equipment throughout the world. We offer various preventive maintenance programs and repair services to support the effective operation of capital equipment over its lifetime. Our Healthcare segment also provides comprehensive instrument, devices, and endoscope…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.