Episode Details

Cardinal Health (CAH) Q4 FY2026 — Revenue $63.67B, +6%, MISSING the $65.03B bar. Non-GAAP EPS $2.91 vs $2.42 estimated - but $0.31 was a one-time IEEPA tariff refund, so the clean number is $2.60. The 8-K landed before the open, so August 11 IS the reaction: a record $258.30 intraday, closing $240.26. Cardinal Health guided FY2027 EPS UP 13-15% and adjusted free cash flow DOWN 20-30% in the same press release. The stock ran to a record $258.30 intraday and gave back 85% of the move to close at $240.26. Roughly half of FY2026's $5,174M operating cash flow came from working capital, not profit - and a distributor's float only pays while revenue accelerates. It has stopped. THE CALL: HOLD (3/5, EARNINGS UP, CASH DOWN, SAME PRESS RELEASE) — base-case value ~$222.0 vs ~$240.26 today. KEY METRICS: - CALL: HOLD 3/5, fair value $222.00 vs the $240.26 record close - 7.6% BELOW the price and 18.5% below the Street's $272.50. Bear $201, base $223, bull $249 at 9.0/8.5/8.0% discount rates. Run backwards, $240.26 already assumes 9.1% owner-earnings growth for five years. - THE ANGLE: EPS guided UP 13-15%, free cash flow guided DOWN 20-30%, same release. FY26 operating cash flow $5,174M vs net earnings $1,705M; trade working capital contributed $2,567M, accounts payable alone $3,463M - two thirds of reported operating cash flow. - THE DECELERATION: FY26 revenue growth by quarter went +22.4%, +18.4%, +11.0%, +5.8%. Cardinal's own FY27 segment guidance implies +3.2% to +5.2%. FY26's 14% was the rebuild after losing OptumRx, a ~$40B/yr customer - never a run rate. - THE TARIFF: the Supreme Court voided the IEEPA tariffs in Feb 2026. Cardinal booked a NET ~$100M operating benefit, all in GMPD. Strip it and GMPD earned ~$50M vs $70M - DOWN ~29%. FY27 GMPD profit is guided to $200-220M, below the $258M just reported. - THE BASE GAME: FY27 guidance of $12.40-$12.60 is called '13-15% growth' - measured off an adjusted $10.95, not the $11.26 reported. Off the reported base it is +10.1% to +11.9%, BELOW Cardinal's own 12-14% long-term algorithm. - FY26: revenue $254.2B +14%; non-GAAP operating earnings $3,624M +30%; non-GAAP EPS $11.26 +37%. Net debt $4,030M, equity a DEFICIT of $2,724M, $4.3B opioid accrued to 2038. We reject the $250M acquisition-comp add-back; accept it and fair value is $259. What to watch: UP: non-GAAP operating earnings +30% to $3.62B with all five segments growing profit double digits; FY27 EPS guided $12.40-$12.60; $6.4B buyback authorisation on a $56B company. DOWN: FY27 free cash flow guided to $3.5-4.0B vs $4.97B; $0.31 of the $2.91 was a tariff refund; ex-tariff GMPD profit FELL; the stock is up 64% in a year. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.