Cardinal Health CAH enters fiscal 2027 with strong momentum across pharmaceutical distribution, specialty solutions and growth businesses. Specialty pharmaceuticals, cell-and-gene therapy capabilities and expanding non-core operations should support earnings growth, while IRA-related pricing changes, GMPD execution challenges, tariffs and elevated operating costs could constrain its overall performance.
Shares of this Zacks Rank #3 (Hold) company have risen 11.7% so far this year compared with the industry's 5.2% growth and the S&P 500 Index’s 11.7% gain.
Cardinal Health, with a market capitalization of $53.38 billion, is a global specialty medical device company.
CAH’s bottom line is estimated to improve 14.9% over the next five years. Its earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 14.72%.
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What's Driving CAH’s Performance?
Pharma and Specialty Solutions Driving Robust Earnings Growth: Cardinal Health enters fiscal 2027 with strong momentum in its largest business, Pharmaceutical and Specialty Solutions. Revenues increased 6% to $58.8 billion in the fourth quarter of fiscal 2026, while segment profit rose 21% to $645 million, driven by brand and specialty portfolios and continued strength in generics.
Management expects Pharma revenues to grow 3-5% in fiscal 2027, with segment profit increasing 8-11%, supported by higher-margin Specialty growth, generic launches and distribution wins. Specialty revenues are expected to grow double digits, including new BioPharma Solutions customers, providing a favorable mix shift toward higher-margin businesses and reducing reliance on traditional pharmaceutical distribution.
Specialty and Cell-and-Gene Therapy Expand Addressable Market: Cardinal Health continues to build higher-value capabilities around specialty pharmaceuticals, particularly complex cell and gene therapies. Its 3PL business secured two additional gene-therapy commercialization agreements, bringing Cardinal Health's exclusive coverage to nearly half of the cell-and-gene market and approximately three-quarters of the total market. The newly opened Innovative Care Pharmacy further integrates specialty distribution, clinical support and financial solutions for high-cost therapies.
These investments should allow Cardinal to capture more economics across the pharmaceutical value chain as specialty drug utilization expands. The opportunity is particularly attractive because specialized services typically generate higher margins than traditional drug distribution.
Other Growth Businesses Provide Diversification: Cardinal's non-core growth businesses are increasingly becoming meaningful contributors to consolidated earnings. The group generated $1.7 billion in revenues during the fiscal fourth quarter, up 7%, while segment profit increased 14% to $183 million.
Management expects revenue growth of 11-13% and segment profit growth of 15-18% in fiscal 2027. Nuclear and Precision Health Solutions should benefit from strong Theranostics and PET demand, while OptiFreight continues to generate strong core volume growth. At-Home Solutions also has additional scale opportunities through Strive Medical and the planned AdaptHealth diabetes acquisition. This diversification should support faster profit growth than the core distribution business.
What’s Hurting CAH’s Prospect
IRA Pricing Changes Will Continue to Constrain Growth: Cardina Health's Pharma business faces a recurring revenue headwind from changes associated with the Inflation Reduction Act (IRA). Management expects fiscal 2027 Pharma revenue growth of only 3-5%, partly because of the annualization of 2026 IRA price changes and implementation of 2027 changes. The company estimates that the 2027 impact on revenue growth will be generally consistent with the headwind experienced during the second half of fiscal 2026. Although management expects no adverse profit impact, lower reported revenue growth could limit the pace of top-line expansion. Uncertainty over whether these changes will ultimately be reflected in rebates or a lower WACC also complicates forecasting.
GMPD Remains a Low-Growth Business: Global Medical Products and Distribution continues to represent a structural challenge despite meaningful improvement. Cardinal Health expects GMPD revenues to increase only 2-4% in fiscal 2027, while segment profit is projected to be $200-$220 million, approximately $50 million above the fiscal 2026 figure, excluding the IEEPA refund.
The improvement depends on continued simplification, Cardinal Health brand growth and cost optimization. Management expects fiscal first-quarter GMPD profit to be roughly half of the prior-year level because of foreign currency and distributor purchase timing, with profit weighted toward the second half. This cadence creates execution risk and limits near-term earnings visibility.
Heavy CapEx Could Pressure Near-Term Cash Conversion: Cardinal Health's transformation increasingly depends on continued capital expenditure to support investment in infrastructure, automation, technology and acquisitions. The company expects $700 million in capital expenditures and $3.5-$4 billion in adjusted free cash flow in fiscal 2027, down from $5 billion in fiscal 2026. Recent acquisitions in At-Home Solutions, including Strive Medical and the planned AdaptHealth diabetes business, introduce integration and execution requirements even as management pursues additional tuck-in opportunities.
Although these investments are intended to generate future scale and synergies, they can constrain near-term cash conversion and increase complexity. The company must therefore balance investment in growth with its commitment to at least $1 billion in annual share repurchases.
Cardinal Health, Inc. Price
Cardinal Health, Inc. price | Cardinal Health, Inc. Quote
Estimate Trend
The Zacks Consensus Estimate for fiscal 2027 revenues is pegged at $267.75 billion, implying growth of 5.3% from the year-ago reported figure. The consensus mark for adjusted EPS is pinned at $12.49, indicating an improvement of 10.9% from the previous year’s recorded level.
In the past 60 days, CAH’s earnings estimate for fiscal 2027 has improved 4%.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Globus Medical GMED, Veracyte VCYT andWest Pharmaceutical WST.
Globus Medical, currently sporting a Zacks Rank #1 (Strong Buy), reported a second-quarter 2026 adjusted earnings per share (EPS) of $1.34, which surpassed the Zacks Consensus Estimate by 19.6%. Revenues of $789.6 million beat the Zacks Consensus Estimate by 0.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
GMED has an estimated long-term earnings growth rate of 12.4%. The company’s earnings beat estimates in each of the trailing four quarters, the average surprise being 27.9%.
Veracyte, currently flaunting a Zacks Rank #1, reported a second-quarter 2026 adjusted EPS of 54 cents, which surpassed the Zacks Consensus Estimate by 25.6%. Revenues of $150.3 million beat the Zacks Consensus Estimate by 4.1%.
VCYT has an estimated earnings growth rate of 8.4% for 2026. The company’s earnings beat estimates in each of the trailing four quarters, the average surprise being 41.8%.
West Pharmaceutical, carrying a Zacks Rank #2 (Buy) at present, reported second-quarter 2026 adjusted EPS of $2.37, which beat the Zacks Consensus Estimate by 13.9%. Revenues of $872.3 million surpassed the Zacks Consensus Estimate by 4.2%.
WST has an estimated long-term earnings growth rate of 16%. WST’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.4%.
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Cardinal Health, Inc. (CAH): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).