Cardinal Health (CAH) Showing Signs Of Being Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Cardinal Health ( CAH) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Cardinal Health as such a stock due to the following factors:

  • CAH has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $109.2 million.
  • CAH has traded 1.7 million shares today.
  • CAH traded in a range 208.8% of the normal price range with a price range of $2.23.
  • CAH traded below its daily resistance level (quality: 25 days, meaning that the stock is crossing a resistance level set by the last 25 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on CAH:

Cardinal Health, Inc., a healthcare services company, provides pharmaceutical and medical products and services in the United States and internationally. The company operates in two segments, Pharmaceutical and Medical. The stock currently has a dividend yield of 1.7%. CAH has a PE ratio of 25.5. Currently there are 12 analysts that rate Cardinal Health a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Cardinal Health has been 1.9 million shares per day over the past 30 days. Cardinal Health has a market cap of $26.6 billion and is part of the services sector and wholesale industry. The stock has a beta of 0.45 and a short float of 1.2% with 2.65 days to cover. Shares are up 18.7% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Cardinal Health as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Health Care Providers & Services industry and the overall market, CARDINAL HEALTH INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • CARDINAL HEALTH INC's earnings per share declined by 21.2% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CARDINAL HEALTH INC increased its bottom line by earning $3.37 versus $0.95 in the prior year. This year, the market expects an improvement in earnings ($4.25 versus $3.37).
  • The debt-to-equity ratio is somewhat low, currently at 0.64, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that CAH's debt-to-equity ratio is low, the quick ratio, which is currently 0.55, displays a potential problem in covering short-term cash needs.
  • CAH, with its decline in revenue, underperformed when compared the industry average of 19.8%. Since the same quarter one year prior, revenues slightly dropped by 1.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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