Wells Fargo upgrades Cardinal Health stock on improved valuation

Wells Fargo upgraded Cardinal Health (CAH) to Overweight with a price target of $179, citing improved valuation, a strong industry backdrop, and impressive execution; the target is based on a 17.5x fiscal year 2027 EPS. The upgrade follows a recent earnings beat and raised full-year EPS guidance, with analysts projecting strong core EBIT growth and upward revisions possible if Pharma segment outperformance continues or GMPD tariff headwinds lessen. Other firms like Citi and Evercore ISI have also raised their price targets, and Cardinal Health increased its quarterly dividend, reflecting confidence in future growth and shareholder value.

Analysis

Wells Fargo has upgraded Cardinal Health (NYSE: CAH) to Overweight from Equal Weight, increasing its price target to $179 from $136, primarily due to an improved valuation and a narrower spread relative to its peers. This upgrade reflects a strong industry environment, an enhancing business mix, and commendable execution by the company, which has seen its stock deliver a 58.8% return over the past year, trading near its 52-week high of $156.44. Analysts project Cardinal Health's core EBIT growth at approximately 14% for fiscal year 2025 and around 6% for fiscal year 2026, translating to a reported EBIT growth of about 11%. Supporting this positive outlook, InvestingPro data indicates strong financial health with a "GREAT" overall score, underpinned by robust cash flows and moderate debt levels. Further upside may materialize if the Pharma segment's recent outperformance persists or if GMPD tariff headwinds prove less severe than anticipated, with the company already indicating significant non-price offsets to tariff pressures. Wells Fargo also revised its EPS estimates upwards for CAH by 1.8% for 2025, 3.3% for 2026, and 4.7% for 2027, factoring in M&A activities and the ADSG deal. The $179 price target is predicated on a 17.5x fiscal year 2027 EPS multiple, a premium deemed justified by strong trends and improved execution. This sentiment is echoed by other firms; Citi raised its target to $157 (Neutral) and Evercore ISI to $175 (Outperform), following Cardinal Health's impressive Q1 2025 earnings, where EPS of $2.35 surpassed the $2.17 forecast, leading to raised full-year EPS guidance. The company also increased its quarterly dividend to $0.5107 per share and anticipates continued double-digit EPS growth in fiscal year 2026, driven by its Pharma and Other segments, alongside growth in its Nuclear segment and strategic acquisitions.

Key Decisions for Investors

• Investors should consider the accumulation of positive catalysts, including multiple analyst upgrades with higher price targets, strong Q1 2025 earnings, and increased full-year guidance, as strong indicators of Cardinal Health's positive momentum and potential for further stock appreciation.
• Monitor the company's Pharma segment performance and developments regarding GMPD tariff impacts, as continued strength or lower-than-expected headwinds in these areas could lead to further upward revisions in earnings estimates and valuation.
• Evaluate Cardinal Health's increased dividend and robust financial health, highlighted by InvestingPro's "GREAT" score, as factors supporting both income generation and capital growth potential within a healthcare portfolio.