- Cardinal Health (ticker: CAH), provides products and services to the healthcare community. The company is split into two divisions:
- Healthcare supply chain services (HSCS)
- Clinical and medical products (CMP).
HSCS supplies drugs to hospitals, clinics, drug store chains. CMP creates medical products for hospitals to improve patient care. (think ventilators, antiseptics, infusion pumps). HSCS makes up of the bulk of the Cardinal’s revenues and profit, and is growing. FY09 revenue is aimed to be at 95.7 billion. CMP, the smaller, barely growing division is projected to hit 4.6billion for FY09.
Some things to be aware of:
- Sales for Cardinal’s HSCS nonbulk division have grown at a slower rate than the bulk division, non-bulk customers require more complex servicing (think value added services which includes receiving inventory in large sizes and breaking it into smaller quantities, warehousing the product for a longer time, delivering smaller orders to a customer location), all of these which translates into a fatter profit margin from non-bulk customers.
- Alaris product recalls (which are part of the CMP division), this is a negative for future growth.
- Hospital capital spending declined drastically probably due to economic conditions as well as the political situation with the Obama healthcare plan.
Cardinal Health’s situation is very murky with sales slowing, hospital capital expenditure curtailment, however where there is uncertainty there are profits to be made.
Some questions you should be thinking, why is this spin-off important and why should you be interested in it?
CMP is a rather unloved subsidiary that’s full of problems and Cardinal can’t wait to get rid of it. HSCS is the prized crown jewel that investors are interested in investing in. The spinning off the undesirable slow growing company will realize value for the parent company (CAH) by refocusing their attention on the HSCS division. As with most spin-off situations, the mutual fund managers will probably sell spinoff without regard or care for value. This is a type of “forced selling” as most mutual funds that are invested in CAH will not be able to hold on to Carefusion due to their investment guidelines (think large cap mutual funds).
Some links to look at:
