Cardinal Health's CAH removal from the Russell 1000 Defensive, Russell 1000 Growth-Defensive and Russell 1000 Value-Defensive indices may initially appear concerning, but the development is more technical than fundamental. The healthcare distributor's exclusion largely reflects Russell's periodic index reclassification following a sharp appreciation in Cardinal Health's share price, rather than any deterioration in its business performance.
After soaring more than 70% in 2025, the stock has already added another 15.4% year to date. The company’s share price performance so far this year has outperformed the industry’s 0.2% decline and S&P 500 Index’s 9.9% gain.
While index-linked funds tracking these benchmarks may trim their holdings, potentially creating short-term selling pressure, the removal does not signal weakening fundamentals or lower earnings expectations. In fact, sentiment around the company remains constructive, with several Wall Street analysts recently raising their price targets.
YTD Performance of CAH vs Industry
Cardinal Health continues to strengthen its position as one of the three dominant U.S. pharmaceutical distributors alongside McKesson MCK and Cencora COR. Its latest quarterly performance reinforced this thesis, as Pharmaceutical and Specialty Solutions once again delivered double-digit revenue and profit growth, while high-margin businesses (including at-Home Solutions, Nuclear & Precision Health Solutions and OptiFreight Logistics) continued to outgrow the core distribution business.
Coupled with sustained healthcare utilization, demographic tailwinds and increasing specialty drug adoption, Cardinal Health's long-term investment case appears driven by operational execution rather than index membership.
Key Drivers of CAH’s Growth
Specialty Healthcare Platform as a Powerful Growth Engine: Cardinal Health's strategy of expanding beyond traditional pharmaceutical distribution is steadily improving its earnings profile. Specialty revenues are expected to exceed $50 billion in fiscal 2026, supported by rapid expansion of its Specialty Alliance physician network, Solaris integration and growing biopharma solutions capabilities.
The Specialty segment profit continues to outpace revenue growth as higher-margin services complement pharmaceutical distribution. Management also highlighted strong momentum in MSO platforms and Sonexus patient-support services, reinforcing specialty healthcare as a durable multiyear growth driver.
High-Growth Businesses Are Diversifying Profit Sources: Cardinal Health's "Other Growth Businesses" have evolved into meaningful contributors to earnings. Revenues from at-Home Solutions, Nuclear & Precision Health Solutions and OptiFreight Logistics surged 31%, while segment profit climbed 34% during the quarter.
Strong demand for home-based care, theranostics and healthcare logistics continues to support growth. ADS integration, expansion of ContinuCare Pathway and investments in distribution infrastructure further strengthen Cardinal Health's ability to capture secular healthcare trends that extend well beyond traditional drug distribution.
Core Pharmaceutical Distribution Remains Exceptionally Resilient: Despite industry pricing changes, Cardinal Health continues demonstrating impressive operating leverage. Pharmaceutical segment revenues increased 11% to $56.1 billion, while segment profit advanced 18%, benefiting from strong specialty demand, stable generic economics and resilient branded pharmaceutical volumes.
GLP-1 therapies alone contributed six percentage points to quarterly revenue growth. Investments in automation, distribution infrastructure and supply-chain efficiency continue supporting record service levels, positioning the company to capitalize on rising prescription volumes and long-term healthcare demand.
A Glance at CAH’s Estimates
The Zacks Consensus Estimate for CAH’s fiscal 2026 and 2027 earnings per share (EPS) implies year-over-year growth of 30.6% and 11.3%, respectively, to $10.76 and $11.98. In the past 60 days, the consensus mark for the company's fiscal 2026 EPS has remained stable.
Revenues for fiscal 2026 are projected to grow 15.1% to $256.24 billion and another 8.8% to $278.75 billion in fiscal 2027.
Competition Remains Intense, but Cardinal Health Is Closing the Gap
Competition among the "Big Three" distributors remains fierce. McKesson continues to leverage its expanding oncology platform, biopharma services and AI-enabled supply chain while delivering double-digit operating profit growth across specialty businesses. Cencora continues to invest aggressively in specialty pharmaceuticals, MSO platforms and digital transformation while strengthening its global specialty logistics capabilities.
However, Cardinal Health has significantly narrowed the competitive gap through the rapid expansion of its specialty business, strong growth in Nuclear & Precision Health Solutions and accelerating growth in at-Home Solutions. While McKesson currently benefits from a broader oncology portfolio and Cencora continues to expand its global specialty capabilities, Cardinal Health appears increasingly differentiated through its diversified healthcare services portfolio.
As McKesson, Cencora and Cardinal Health continue to invest aggressively in specialty care, competitive intensity is likely to remain elevated across the healthcare distribution landscape.
Risks and Challenges
Despite its strong outlook, several risks warrant attention. Inflation Reduction Act pricing adjustments continue creating revenue headwinds despite limited profit impact. Tariff-related uncertainty remains concentrated within the Global Medical Products and Distribution business, while integration risks surrounding Solaris and ADS acquisitions require successful execution.
Specialty growth also depends on successful physician network expansion and sustained pharmaceutical demand. Additionally, reimbursement reforms, changing drug pricing dynamics and competitive investments by McKesson and Cencora could pressure long-term margins across the healthcare distribution industry.
Conclusion
Although Russell index removal may trigger temporary passive fund selling, it does not alter Cardinal Health's improving fundamentals. Strong execution across specialty healthcare, pharmaceutical distribution and higher-margin growth businesses support a favorable long-term outlook. While competitive and regulatory risks remain, the company's structural growth drivers remain intact. According to the Zacks Consensus Estimate, the average target price still implies roughly 5.6% upside from current levels.
With a Zacks Rank #3 (Hold), existing CAH investors may find sufficient reasons to retain the stock while monitoring continued execution in its specialty-led growth strategy. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Radical New Technology Could Hand Investors Huge Gains
Quantum Computing is the next technological revolution, and it could be even more advanced than AI.
While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.
Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.
Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.See Top Quantum Stocks Now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cardinal Health, Inc. (CAH): Free Stock Analysis Report
McKesson Corporation (MCK): Free Stock Analysis Report
Cencora, Inc. (COR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research