Monday, May 11, 2020

Will Cardinal Health Deliver Healthy Results?

Tags

What’s happening: Cardinal Health is all set to report its fiscal third quarter results before the opening bell on Monday, May 11.

What happened: Although pharmaceutical companies have been benefiting from the ongoing pandemic, they are facing various issues in their production and distribution. Cardinal Health is the second largest distributor of pharmaceuticals in the US and is considered a benchmark for the performance of the overall pharma sector during the coronavirus outbreak.

The company has beaten earnings estimates almost every quarter for the past two years and, given the ongoing health crisis, its estimates have been revised upwards over the last three months. However, there are certain factors that have impacted Cardinal Health’s profits in the quarter.

Expectations for the quarter: The prescription drug distributor is expected to report a decline in earnings, despite revenue growth.

  • The consensus estimate for revenue calls for 5.1% growth to $37.04 billion.
  • The company is expected to report earnings of $1.45 per share, down 8.8% from the same quarter last year.

Why it matters: Cardinal Health’s medical segment, which manufactures products like surgical gloves and drapes, gowns and infection control products, is likely to have witnessed a surge in unit sales in the current environment.

The healthcare company has been focusing on cost savings initiatives intended to simplify its operating structure, which is expected to have benefitted the overall margins and the bottom line. The Dublin, Ohio-based company also enjoys a strong position due to its diversified product portfolio.

Despite all the positives, Cardinal Health’s margins may have suffered some setback due to intense competition in all its business segments. Cost of debt is also likely to have dented overall profitability. The company exited 2019 with debt of almost $8 billion. Also, after deducting cash and short-term receivables, Cardinal Health faces net liabilities of around $30 billion.

Spartan Bio recently announced a partnership with Cardinal Health for the distribution of its CYP2C19 genotyping assay in the US. Cardinal Health has named Jason Hollar from auto giant Tenneco as its new CFO. Hollar will be replacing Dave Evans and is scheduled to begin his tenure on May 12.

How the shares have performed so far: Investor sentiment has been positive ahead of the quarterly release, sending shares of Cardinal Health higher by more than 5% over the past five days. Although the stock has risen 1% over the past month, it has lost more than 14% in the last three months.

What to watch: Investors will look out for updates on Cardinal Health’s initiatives to maintain its supply chains working smoothly amid the ongoing crisis. The markets will also keep an eye on the company’s outlook for the year and the coronavirus impact on its business.

The Markets Today

     

European markets will be in focus today, after the region’s stocks finished last week on a higher note.

Context: European stocks closed higher on Friday, with investor sentiment being lifted by news of trade talks between the US and China. Markets also shrugged off the record surge in US job losses, with the figure coming in lower than expected.

Details: According to China’s Xinhua News Agency, US Trade Representative Robert Lighthizer invited Chinese Vice Premier Liu He to discuss the phase one trade deal between Washington and Beijing and both countries agreed to strengthen their trade ties.

This news came as a relief to investors, who had been worried that the US-China standoff would cause further damage to the global economy.

Meanwhile, the US Labor Department reported a spike in the unemployment rate to 14.7% in April, from 4.4% in the previous month. Back in Europe, Germany reported a higher-than-expected 12% decline in exports in March.

Shares of Siemens gained 5% on Friday after the company announced results for its first quarter. Shares of ING Groep NV gained around 4%, despite the Dutch bank reporting a 36% decline in pre-tax profits. However, the bank said it had set aside additional provisions to deal with the coronavirus pandemic.

The pan Stoxx Europe 600 index gained 0.91% on Friday, while the FTSE 100 remained closed due to the VE Day holiday. The German DAX 30 closed higher by 1.35% and the French CAC 40 rose 1.07%.

What to watch: Investors will be keeping an eye on daily coronavirus numbers, with the total cases exceeding 4,101,690 globally. Spain has confirmed more than 224,350 COVID-19 cases with 26,620 deaths. The UK has overtaken Italy in terms of number of cases, which stands at more than 220,440, followed by Italy’s 219,070.

The economic calendar is very light for Europe today, with only Italy set to report its latest numbers on industrial production. The country’s industrial production, which fell 1.2% in February, is expected to plunge 20% in March.

Other Markets: US indices closed higher on Friday, with the Dow, S&P 500 and NASDAQ 100 up by 1.91%, 1.69% and 1.58%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Turkey’s unemployment rate, ECB’s Mersch speech as well as the US consumer inflation expectations, speeches from Fed members Raphael W. Bostic and Charles Evans.