Cardinal Health CAH is well positioned for continued growth, thanks to the expansion of its speciality portfolio. The firm delivered strong fiscal third-quarter results, fueled by robust demand in pharmaceutical distribution and accelerating specialty services. Growth in theranostics, at-home solutions, and logistics businesses, alongside improving performance in the medical segment, continues to strengthen CAH’s long-term earnings outlook.
This Zacks Rank #2 (Buy) company’s shares have lost 2.5% so far this year compared with the industry’s 9.3% decline. The S&P 500 has increased 8.1% during the same time frame.
The leading provider of healthcare services and products has a market capitalization of $46.93 billion. It projects 15.7% growth over the next five years and expects to witness continued improvement in its business going forward. Cardinal Health’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 13.21%.
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Let’s delve deeper.
Upsides
Strong Specialty and Pharmaceutical Momentum: Cardinal Health’s Pharmaceutical and Specialty Solutions segment continues to be the company’s primary earnings engine, delivering 11% revenue growth and 18% segment profit growth in the third quarter of fiscal 2026. Growth was fueled by robust pharmaceutical demand across specialty, generics and consumer health, with specialty revenues growing more than 20% and oncology expanding over 30%.
Management reiterated expectations for specialty revenues to exceed $50 billion in fiscal 2026, supported by MSO expansion, biopharma solutions, and the Solaris integration. This increasing exposure to higher-margin specialty ecosystems strengthens Cardinal Health’s long-term earnings profile while reducing its dependence on traditional low-margin drug distribution.
Other Growth Businesses Hold Potential: Cardinal Health’s Other growth businesses — At-Home Solutions, Nuclear and Precision Health Solutions (“NPHS”), and OptiFreight Logistics — are becoming increasingly important contributors to earnings diversification. In the fiscal third quarter, revenues from these businesses surged 31% to $1.7 billion, while profit increased 34% to $179 million, supported by secular trends, such as home-based care, theranostics and logistics optimization.
Particularly notable was theranostics growth of more than 30% and continued integration progress at Advanced Diabetes Supply (“ADS”), which added nearly 500,000 patients. These businesses carry structurally stronger growth and margin profiles than traditional distribution, providing CAH with multiple long-term expansion drivers.
Strong Cash Flow and Disciplined Capital Allocation: Cardinal Health generated $1.7 billion in adjusted free cash flow in the third quarter, prompting management to raise fiscal 2026 free cash flow guidance to $3.3-$3.7 billion.
The company has also repurchased $1 billion worth of shares year to date, exceeding its baseline target while reducing leverage to 3.0x, comfortably within its target range. Strong cash generation provides Cardinal Health with the flexibility to fund specialty expansion, invest in automation and infrastructure, pursue disciplined acquisitions, and return capital to shareholders simultaneously. This disciplined capital allocation framework strengthens financial resilience and enhances long-term earnings accretion potential.
Improving Operational Execution and Infrastructure Investments: Cardinal Health continues to strengthen operational efficiency through automation, technology upgrades and supply-chain investments, which management said helped maintain record-high service levels despite heightened winter storms and global supply disruptions.
The company is modernizing its distribution infrastructure, expanding capacity, and simplifying operations within the GMPD segment while maintaining strong customer retention. Investments in technology and logistics are also supporting higher productivity and service quality, particularly across specialty and at-home care businesses. These operational improvements should enhance scalability, strengthen customer relationships, and support sustained margin resilience as volumes continue to grow.
Downsides
IRA Pricing Changes and Mix Shifts: Cardinal Health’s Pharma revenue growth faces rising complexity due to Inflation Reduction Act (IRA)-related WAC pricing adjustments, which reduced revenue growth by approximately 6 percentage points in the fiscal third quarter, effectively offsetting GLP-1 contribution.
While management emphasized that contract economics remain protected through fee renegotiations, lower branded drug prices can still suppress reported top-line growth. The shift from branded drugs to generics following loss-of-exclusivity events, though favorable for profitability, can limit revenue visibility. Consequently, robust demand may not be reflected proportionally in reported sales growth for Cardinal Health.
GMPD Segment Recovery Remains Fragile: Cardinal Health’s Global Medical Products and Distribution (“GMPD”) segment continues to face execution risk despite improvement initiatives. Segment revenues were flat year over year, while profit declined to $25 million, largely due to tariff-related headwinds and lower distribution volumes.
Management cited softness stemming from lost customer contracts and weaker respiratory and laboratory demand, though branded products remained resilient. While simplification initiatives and supply-chain improvements continue to progress, profitability remains vulnerable to external pressures such as tariffs, fuel costs, and commodity inflation, which could delay margin recovery in this segment for Cardinal Health.
Estimate Trend
Cardinal Health has been witnessing an improving estimate revision trend for 2026. Over the past 30 days, the Zacks Consensus Estimate for earnings per share (EPS) has improved 3.9% to $10.72.
The Zacks Consensus Estimate for fourth-quarter fiscal 2026 revenues is pegged at $65.85 billion, indicating a 9.5% improvement from the year-ago reported number. The Zacks Consensus Estimate for EPS is pinned at $2.40, implying a year-over-year gain of 15.4%.
Cardinal Health, Inc. Price
Cardinal Health, Inc. price | Cardinal Health, Inc. Quote
Other Stocks to Consider
Some other top-ranked stocks from the same medical industry are Pacific Biosciences of California PACB, Globus Medical GMED and Biodesix BDSX.
Pacific Biosciences of California, currently carrying a Zacks Rank #2, reported a first-quarter 2026 adjusted loss per share of 12 cents, which surpassed the Zacks Consensus Estimate by 29.4%. Revenues of $37 million missed the Zacks Consensus Estimate by 9.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PACB’s earnings are estimated to decline at a rate of 12.2% against the industry’s 16.9% growth in 2027. The company beat earnings estimates in each of the trailing four quarters, with the average surprise being 29.76%.
Globus Medical, carrying a Zacks Rank #2 at present, reported first-quarter 2026 adjusted EPS of $1.12, which outpaced the Zacks Consensus Estimate by 21.7%. Revenues of $760 million surpassed the Zacks Consensus Estimate by 4%.
GMED has an estimated long-term earnings growth rate of 10.2% compared with the industry’s 12.6% rise. The company beat earnings estimates in each of the trailing four quarters, with the average surprise being 26.26%.
Biodesix, currently carrying a Zacks Rank of 2, reported a first-quarter 2026 adjusted loss per share of 81 cents, which beat the Zacks Consensus Estimate by 35.71%. Revenues of $26 million beat the Zacks Consensus Estimate by 12.3%.
BDSX has an estimated earnings growth rate of 36% for 2026 compared with the industry’s 13.4% rise. The company beat earnings estimates in three of the trailing four quarters and missed once, with the average surprise being 25.56%.
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Cardinal Health, Inc. (CAH): Free Stock Analysis Report
Globus Medical, Inc. (GMED): Free Stock Analysis Report
Pacific Biosciences of California, Inc. (PACB): Free Stock Analysis Report
Biodesix, Inc. (BDSX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).