Cardinal Health, Inc. (CAH): Despite a Big Contract Loss, This Healthcare Service Company is a Buy

Lowest valuation but highest dividend yield

Another peer, McKesson Corporation (NYSE:MCK), has the highest valuation of the bunch. McKesson is trading at $114.60 per share, with the total market cap of nearly $26 billion. The market values McKesson at 9.75 its trailing EBITDA. McKesson has experienced 10% CAGR in adjusted EPS for the past four years, from $4.35 in 2009 to $6.33 in 2013. During this four year period, McKesson has deployed $15 billion, including $6.2 billion in acquisitions, $6 billion in share repurchases, $2 billion in internal capital spending and $800 million in dividends. Looking forward, McKesson Corporation (NYSE:MCK) expects to generate around $7.90 to $8.20 per share in adjusted EPS from continuing operations for the full year 2014.

Among the three companies, Cardinal Health, Inc. (NYSE:CAH) pays its shareholders the highest dividend yield at 2.5%. AmerisourceBergen ranks second with a 1.5% dividend yield, while McKesson offers the lowest dividend yield, at 0.7%.

My Foolish take

With the highest dividend yield, higher margin business, lower working capital needs and relatively low valuation, Cardinal Health seems to be a decent purchase upon its temporary short-term business setback.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends McKesson. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Despite a Big Contract Loss, This Healthcare Service Company is a Buy originally appeared on Fool.com and is written by Anh HOANG.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.