Market Overview

Among Its Peers, Cardinal Health Could Be The Most Exposed To 'Amazon Risk'

Share:
Among Its Peers, Cardinal Health Could Be The Most Exposed To 'Amazon Risk'

Amazon.com, Inc. (NASDAQ: AMZN) poses an existential threat to a host of retailers, and even to companies outside the retail arena. Drug distributor Cardinal Health Inc (NYSE: CAH) could be one among them, according to Morgan Stanley. 

The Analyst

Morgan Stanley analyst Ricky Goldwasser downgraded her rating on Cardinal Health from Equal-weight to Underweight and reduced the price target from $72 to $51.

The Thesis

Cardinal Health has "outsized exposure" to Amazon compared to its peers via its medical supply segment, Goldwasser said in a Sunday note. (See Goldwasser's track record here.) 

Amazon's recent hires and public statements suggest the company is seeking to scale its medical supply distribution efforts, Goldwasser said.

This will help Amazon compete head-to-head with primary source distributors such as Cardinal, the analyst said. 
Cardinal's potential earnings risk is still underappreciated despite the recent sell-off in the company's shares, according to Morgan Stanley. After consolidating for about two months since mid-August, Cardinal Health shares have been on a steep downward trajectory since late October.

"While Cardinal's revenue exposure to commoditized medical supplies is limited (8 percent of revenue), the fixed cost distribution model creates a greater headwind to earnings, in a more competitive pricing environment scenario, than we believe is appreciated," Goldwasser said. 

Morgan Stanley estimates every 1 percent of price concession translated to a 4 percent earnings headwind. As Amazon steps on the gas and builds infrastructure, price competition is likely a matter of time, the analyst said. 

Reflecting the competitive dynamics, Morgan Stanley updated its EPS estimates for Cardinal Health in 2018, 2019 and 2020, taking them below the consensus expectations.

The Price Action

At last check, Cardinal Health shares were down 2.99 percent at $55.79.

Related Links:

Generic Drug Pricing Taking A Bite Out Of Cardinal Health's Margins

Opinion: Cardinal Health's Rising Dividends Make It Attractive

Photo courtesy of Amazon. 

Latest Ratings for CAH

DateFirmActionFromTo
Dec 2019DowngradesBuyNeutral
Nov 2019MaintainsNeutral
Sep 2019Initiates Coverage OnHold

View More Analyst Ratings for CAH
View the Latest Analyst Ratings

Posted-In: Amazon Cardinal Health Morgan Stanley Ricky GoldwasserAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

 

Related Articles (AMZN + CAH)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
VALB of A SecuritiesMaintains5.0
HALB of A SecuritiesMaintains28.0
PPLB of A SecuritiesMaintains35.0
PNWB of A SecuritiesMaintains97.0
IRBTB of A SecuritiesMaintains56.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com