Cardinal Health (NYSE:CAH) experienced a drop of more than 6% intra-day today following Wells Fargo’s initiation of the stock with an Underweight rating and a price target of $96 per share.
The analysts mentioned that while Cardinal Health’s fundamentals are showing improvement, there are concerns regarding its relationship with Optum and the potential impact on the company. A key point of attention is the renewal of Cardinal Health’s contract with Optum, set for June 2024. The analysts highlighted the uncertainty surrounding this renewal, especially since Optum seems to be moving towards handling some aspects of specialty distribution independently. This is evidenced by the recent opening of a large specialty distribution facility by Optum in Ohio.
Optum’s operations constitute approximately 17% of Cardinal Health’s pharmaceutical revenue but contribute a smaller percentage to its EBIT (Earnings Before Interest and Taxes). While the exact plans of Optum are not clear, analysts anticipate potential challenges to Cardinal Health’s earnings and growth prospects due to these developments.