J.P Morgan Comments On Cardinal Health As It Gives A Look Into Its Distribution Segment

Generics are expected to be the biggest driver of profitability for Cardinal Health's CAH distribution segment for FY2012-15. With the acquisition of Kinray, J.P Morgan projects that the percentage of independent customers served increases to 13% of total revenue, thus increasing the number of generic purchasing customers. J.P Morgan expects operating margin expansion in the low double-digits again during FY12 due to increased generic launches and generic penetration. Roughly 4-6 generic manufacturers per product are expected for the next big launches due to manufacturing issues and consolidation in the industry. This should provide more pricing stability and a longer tail to profitability. During summer 2010, roughly 64% of the world's radiopharmaceutical supply was lost as two key nuclear reactors were out. Through optimizing the distribution and conservation of radiopharmaceuticals, CAH was able to mitigate much of the impact on customers and profitability. Supply levels have since normalized though it notes that demand is still below pre-shortage levels thus providing incremental revenue and margin opportunity. J.P Morgan has a $44 PT and Overweight rating on CAH CAH closed Tuesday at $40.87