Critical Comparison: Cardinal Health, Inc. (CAH) vs. State Street Corporation (STT)

Cardinal Health, Inc. (NYSE:CAH) shares are down more than -11.51% this year and recently decreased -0.29% or -$0.16 to settle at $54.22. State Street Corporation (NYSE:STT), on the other hand, is down -15.10% year to date as of 10/10/2018. It currently trades at $82.87 and has returned -3.74% during the past week.

Cardinal Health, Inc. (NYSE:CAH) and State Street Corporation (NYSE:STT) are the two most active stocks in the Drugs Wholesale industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.


The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CAH to grow earnings at a 4.94% annual rate over the next 5 years. Comparatively, STT is expected to grow at a 11.48% annual rate. All else equal, STT’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 44.87% for State Street Corporation (STT). CAH’s ROI is -1.90% while STT has a ROI of 5.20%. The interpretation is that STT’s business generates a higher return on investment than CAH’s.

Cash Flow

Cash is king when it comes to investing. CAH’s free cash flow (“FCF”) per share for the trailing twelve months was +0.87. Comparatively, STT’s free cash flow per share was -4.80. On a percent-of-sales basis, CAH’s free cash flow was 0.19% while STT converted -14.92% of its revenues into cash flow. This means that, for a given level of sales, CAH is able to generate more free cash flow for investors.

Liquidity and Financial Risk

CAH’s debt-to-equity ratio is 1.49 versus a D/E of 0.75 for STT. CAH is therefore the more solvent of the two companies, and has lower financial risk.


CAH trades at a forward P/E of 9.98, a P/B of 2.77, and a P/S of 0.12, compared to a forward P/E of 10.14, a P/B of 1.56, and a P/S of 9.50 for STT. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. CAH is currently priced at a -1.29% to its one-year price target of 54.93. Comparatively, STT is -19.79% relative to its price target of 103.31. This suggests that STT is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CAH has a beta of 0.97 and STT’s beta is 1.20. CAH’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CAH has a short ratio of 3.07 compared to a short interest of 0.88 for STT. This implies that the market is currently less bearish on the outlook for STT.


State Street Corporation (NYSE:STT) beats Cardinal Health, Inc. (NYSE:CAH) on a total of 8 of the 14 factors compared between the two stocks. STT has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. STT is more undervalued relative to its price target. Finally, STT has better sentiment signals based on short interest.

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