As previously reported, Goldman downgraded Cardinal Health to Neutral from Conviction Buy and lowered its price target to $83 from $90. Analyst Robert Jones reduced his rating given softer brand price inflation that presents additional risk to earnings. Cardinal could face a $40M shortfall relative to guidance if brand inflation remains in the 7% range, versus the 10% assumed in FY17 guidance. Jones is now modeling 6% core growth in FY17, slightly below the 9% core growth expected in FY16. Further, the analyst believes margin improvement at Cordis will take more time than expected due to foreign exchange headwinds and a longer integration timeline.

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Evercore ISI says that while neither OptumRx nor Cardinal Health (CAH) would confirm the winner of the contract, McKesson (MCK) confirmed it had won the contract beginning in July. Cardinal this morning announced that its pharmaceutical distribution contracts with OptumRx, which represented 16% of fiscal 2023 revenue, is expiring at end of June and will not be renewed. Evercore estimates the win would represent a 50c-65c earnings per share benefit to McKesson on a full-year basis or likely half of that given the contract does not start until July. The firm does not see Cardinal's announcement as "heralding a broadly more competitive period for the distributors, but rather a one-off contract shift given what was likely an off-market contract."

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