Drug Distributing Giant Cardinal Health Will Not Renew OptumRx Distribution Pact, Stock Plunges
Portfolio Pulse from Vandana Singh
Cardinal Health, Inc. (NYSE:CAH) announced it will not renew its pharmaceutical distribution contracts with OptumRx, a subsidiary of UnitedHealth Group Inc (NYSE:UNH), expiring end of June 2024. Despite this, Cardinal Health reaffirmed its fiscal 2024 EPS guidance and long-term profit growth targets. Sales to OptumRx accounted for 16% of Cardinal's revenue in fiscal 2023, with the majority being non-specialty bulk shipments. The company expects to offset the OptumRx impact through new customer wins and specialty growth, aiming for an average adjusted free cash flow of $2 billion from fiscal 2024 to 2026. CAH shares dropped 4.32% in premarket trading following the announcement.
April 22, 2024 | 1:10 pm
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NEUTRAL IMPACT
UnitedHealth Group's subsidiary OptumRx will not renew its distribution contracts with Cardinal Health, which previously accounted for 16% of Cardinal's revenue.
While the non-renewal of contracts with Cardinal Health removes a revenue source for OptumRx, the impact on UnitedHealth Group as a whole may be mitigated by its diversified healthcare services. The direct effect on UNH stock is likely neutral in the short term, as the market may have already anticipated such changes in business partnerships.
CONFIDENCE 80
IMPORTANCE 60
RELEVANCE 50
NEGATIVE IMPACT
Cardinal Health announced non-renewal of OptumRx contracts but reaffirmed fiscal 2024 EPS guidance and long-term growth targets. Sales to OptumRx represented 16% of revenue. Shares fell 4.32% premarket.
The non-renewal of the OptumRx contracts directly impacts Cardinal Health's revenue stream, accounting for a significant portion of its sales. Despite reaffirming growth targets, the immediate negative market reaction and share price drop reflect investor concerns over the short-term impact of this decision.
CONFIDENCE 90
IMPORTANCE 90
RELEVANCE 100