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Generically better

07 February 2020 by lberuti

Cardinal Health, Inc. (CAH) provides complementary products and services to healthcare providers and manufacturers. Their services include pharmaceutical distribution, health-care product manufacturing, distribution and consulting services, drug delivery systems development, pharmaceutical packaging, automated dispensing systems manufacturing, and retail pharmacy franchising. CAH CDS is a constituent of the CDX IG since s04. The 5y CDS is currently paying ~75bp. CAH CDS has reverted tighter by ~90bp from an OCT19 peak (~165) along with the broader sector as the opioid-linked risk faded. Yesterday CAH tightened -8 and its stock rose +12% on the back of better than expected performance in their pharmaceutical distribution segment. Indeed, the segment saw quarterly sales of $36b (+6%) profit of $462m (+4%) both beating consensus. During the call the company stated that for the first time in several quarters, their generics program reverted from being a net negative to being a net positive. Gross debt was ~ unchanged at $7.9b including $1.2b ST. Cash reported on balance sheet was $1.7b. Operating cash flow for the quarter was reported at ~$700m and FCF at ~$620m. CAH paid ~$140m in dividends and after the ~$350m share buybacks last quarter, they do not plan to buy more this year. In the call they reasserted their guidance to cut LT debt by >$1b in fy 2020. For reference the name is Baa2n / BBBs / BBBs and no imminent rating change is expected.