Cardinal Health shares tumble after Wells Fargo warns of Optum concerns
Cardinal Health (NYSE:CAH) shares plunged Thursday after the stock was initiated with an Underweight rating and $96 per share price target at Wells Fargo.
Shares of the company are currently trading above the $101 level at the time of writing, down 6% from Wednesday's close.
Analysts at Wells Fargo said the company's improving fundamentals are likely offset by Optum concerns and implications.
«CAH's contract with Optum is up for renewal in June 2024. While any large customer renewal would be an overhang, Optum appears to be preparing to handle at least some specialty distribution itself,» analysts noted. «We have learned that Optum quietly opened a large specialty distribution facility in Ohio a few months ago. In total, Optum represents ~17% of Pharma rev and a much smaller % of EBIT.»
While the analysts at Wells Fargo said they do not know Optum's exact plans, they assume there will be a headwind to CAH's earnings and growth.
Despite the concerns, the analysts acknowledged that CAH's business quality and execution appear to be improving. Even so, they believe it remains a structurally lower-growth company compared to peers.
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