Cardinal Health Touts Biosimilars Growth Amid Persistent Financial Risks

What happened

Cardinal Health released a 2026 Biosimilars Report, highlighting projected cost savings and strong provider confidence, particularly in oncology, to promote its specialty drug strategy. This aligns with the company's ongoing pivot towards higher-margin specialty distribution and MSO platforms, which management has emphasized in recent filings and earnings calls. However, beneath this promotional surface, the DeepValue report reveals significant risks, including a widening gap between GAAP and non-GAAP earnings driven by acquisition-related amortization and compensation costs. Customer concentration remains a critical vulnerability, with CVS accounting for approximately 30% of revenue, and policy uncertainties from IRA drug pricing reforms threaten to compress specialty margins. Investors should view this report as a narrative reinforcement rather than a substantive change, as it does not address core financial health concerns or alter the elevated valuation.

Implication

This report underscores Cardinal Health's strategic focus on biosimilars and specialty drugs, which is essential for achieving its FY26 non-GAAP EPS target of at least $10.00 and driving margin expansion in the Pharma segment. However, it does not resolve underlying issues such as the growing reliance on non-GAAP adjustments, which obscure true economic performance amid rising acquisition costs and leverage. High customer concentration with CVS exposes the company to potential revenue shocks similar to the OptumRx loss, compounded by net debt of $5.47 billion and interest expense guidance of around $325 million. Regulatory pressures from IRA drug pricing negotiations could further erode specialty profitability, challenging the sustainability of double-digit EPS growth beyond FY26. Consequently, investors should maintain a defensive stance, considering the stock's crowded momentum ownership and lack of margin of safety at current valuations.

Thesis delta

The biosimilars report does not shift the core investment thesis; it reinforces Cardinal's commitment to specialty growth but highlights the promotional nature of current communications. Investors must continue to monitor earnings quality, customer concentration, and policy risks, as no fundamental improvement in the risk-reward profile is evident. This news merely reiterates existing strategic priorities without altering the potential sell rating or valuation concerns.