$95.66
$189.06
bear $95.66
base $137.32
bull $189.06
margin of safety $78.00
market price* $254.06
THE BUSINESS. Cardinal Health is one of the three national U.S. drug wholesalers (with McKesson and Cencora). In fiscal 2026 (year ended June 30, 2026) it had $254.2 billion of revenue, up 14%, but operating earnings of only $2.6 billion, about 1% of revenue. Segment profit was $3.75 billion, up 29%: $2.78 billion from Pharma distribution and specialty (including its physician-practice management platforms), $258 million from Global Medical Products and Distribution, and $707 million from other businesses. Its largest customer, CVS Health, is 28% of revenue, and the five largest customers are 43%. Its OptumRx distribution contracts expired at the end of June 2024, which is the closest precedent for what losing a big customer does. Over roughly a year starting December 2024 it spent about $7 billion buying physician-practice platforms and related businesses (Integrated Oncology Network $1.1 billion, a 73% stake in GI Alliance $2.8 billion, Advanced Diabetes Supply $1.0 billion, Urology America $381 million, Solaris Health $1.9 billion), and it has a record of writing acquisitions down: goodwill write-offs in five of the last nine fiscal years, including $184 million in fiscal 2026. HOW WE MEASURE EARNINGS. We start from operating cash flow and remove (1) the swing in trade receivables, inventories and payables, (2) stock compensation ($367 million in fiscal 2026, up from $121 million in fiscal 2024) and (3) only the capital spending needed to stay in business ($571 million in fiscal 2026, after setting aside $78 million that supports growth). The line for other accrued liabilities, which carries the opioid settlement payments, litigation and taxes, is left in as a real cost. On this basis, earnings per diluted share were $4.67, $5.79, $5.89, $6.83, $7.23, $6.48, $3.33, $5.02, $6.29 and $7.04 for fiscal 2017 through 2026. This replaces the $17.54 shown earlier for fiscal 2026, which was inflated by $2.6 billion of net cash from slower payments to vendors. THE STREAM WE VALUE. Lenders and the opioid settlement are treated as claims on the business, so we value the cash the business produces before interest and before settlement installments, then subtract what is owed. That stream was $2.07 billion in fiscal 2024, $2.64 billion in 2025 and $2.49 billion in 2026 (interest paid $406 million and settlement payments $417 million in 2026 added back to earnings of $1.67 billion). We use fiscal 2024 through 2026 as the window and take the median, $2.49 billion, or $10.51 per share on 237 million diluted shares. The window starts at fiscal 2024 because those years follow the fiscal 2022-2023 slump and the last two include the practice-platform purchases that began in December 2024; earlier years describe a different company. Fiscal 2022 included a one-time $966 million federal tax refund, and fiscal 2023 carried a $372 million settlement installment and part of a $275 million product-liability settlement. As a cross-check, fiscal 2026 operating earnings of $2.61 billion plus the non-cash $184 million write-off, plus $956 million of depreciation and amortization, less $571 million of capital spending, $367 million of stock compensation and $338 million of cash taxes, gives about $2.48 billion, within 1% of the stream. Reported earnings after interest grew 12% per share in fiscal 2026 ($6.29 to $7.04), but the stream we value fell 5.5% in total dollars ($2.64 billion to $2.49 billion), so we assume no growth in the first year. Amortization of acquired intangibles ($361 million a year) is non-cash and added back; because we credit no growth, it is not treated as permanent expansion. OBLIGATIONS (used in all three cases). Borrowings are $8.9 billion, of which $1.9 billion is due within a year; cash is $4.86 billion, and we count $3.36 billion of it as spare, holding back $1.5 billion to run the business. Most notes carry fixed coupons between 3.41% and 5.75% running out to 2054; the interest saved over their lives lowers the debt figure by about $0.45 billion. Outside owners of a subsidiary add $0.16 billion. Net, that is $5.24 billion, or $22.11 per share. The opioid settlement is a separate, dated obligation: $4.22 billion of scheduled payments through 2038, $403 million in the next twelve months, worth $2.93 billion today, or $12.35 per share. A new $4.0 billion credit facility was signed August 7, 2026, and the company met its net-leverage covenant (maximum 3.75 times) at year-end. BASE CASE: $137.32 per share. The stream stays at $2.49 billion a year with no growth. We credit no growth because nothing is secured: the acquisitions are paid for but their added profit is not disclosed (the fiscal 2024 to 2026 stream rose about $0.4 billion after roughly $7 billion of purchases), drug-spending growth is a market expansion, and future deals have not happened. The earnings continue indefinitely because the three-wholesaler structure and the state and federal licensing every distributor needs are structural features in evidence, and this cash stream has stayed between $1.4 billion and $2.6 billion every year since fiscal 2017, through the pandemic and the fiscal 2022-2023 slump. That is worth about $175 per share. From it we subtract $22.11 of borrowings and other claims, $12.35 for the opioid settlement, and $3.48 for the tax dispute described next, leaving $137.32. In June 2026 the IRS issued a notice challenging the tax treatment of loss carrybacks from the company's captive insurer, which the company says could mean about $1.4 billion of additional tax liability plus interest and about $400 million of additional tax expense. The company carries $907 million plus $75 million of accrued interest for uncertain tax positions in general; we assume that roughly $0.98 billion is paid in fiscal 2029. BEAR CASE: $95.66 per share. Built from named risks: (1) cash taxes drift up about $140 million toward the 25.3% book rate (cash taxes were $338 million in fiscal 2026). (2) The IRS wins in full in fiscal 2028: the $1.4 billion the company cites plus an assumed $0.5 billion of interest, about $1.9 billion. (3) A downturn like fiscal 2022-2023 in fiscal 2029 and 2030, when the stream (adjusted for the tax refund and settlement installments) averaged $1.43 billion against $2.31 billion in fiscal 2021, a 38% fall driven by the medical segment (profit fell from $577 million to $216 million), litigation payments and cost inflation. (4) The generic sourcing venture with CVS Health runs through June 2029; we assume that when it ends CVS re-bids its business and half of CVS's economics are lost, about $0.32 billion a year (28% of revenue at the Pharma margin of about 1.2%, taxed at 25%), starting fiscal 2030, plus a one-time $1.0 billion unwind of vendor-payment float as happened with OptumRx (half of CVS's revenue share times net trade payables of about 2.8% of revenue). After that the stream settles at $2.04 billion permanently. The business is worth about $130 per share after absorbing those hits; it owes $34.46 per share (borrowings and other claims plus the opioid settlement); the difference is $95.66. The worst year (fiscal 2030) leaves $0.14 billion of cash flow against roughly $0.4 billion of interest, covered from the $4.9 billion of cash on hand. BULL CASE: $189.06 per share. The company's own levers work: about $88 million of acquisition and integration costs in fiscal 2026 do not repeat (about $66 million after tax); the medical products segment, which earned $258 million, climbs toward $450 million (its predecessor earned $577 million in fiscal 2021 and $663 million in fiscal 2020), adding about $144 million after tax, taking the stream to $2.60 billion in fiscal 2027 and $2.70 billion in fiscal 2028. It then grows 3% a year for five years and 1.5% for five, below the 4.4% a year this stream has compounded since fiscal 2017 ($1.70 billion to $2.49 billion), and is flat after that. The IRS challenge fails. The business is worth about $223.50 per share; it owes $34.46; the difference is $189.06. LEFT OUT. Four more months of Solaris ownership (profit not disclosed), the net tariff refund (immaterial in fiscal 2026), further acquisitions, GLP-1 demand and buybacks (value-neutral to the business). Higher planned capital spending of about $700 million in fiscal 2027 is not separately adjusted. Not fully reconciled from the filings: how the $275 million product-liability settlement splits between fiscal 2023 and 2024, and the outcome of the IRS audit. Our September 2026 figures were built on a different basis and are not comparable; this update explicitly weights the IRS notice, customer concentration and the settlement schedule. WHAT COULD MAKE THIS WRONG. Every $100 million of lasting annual cash earnings is worth about $7 per share. Losing all of CVS, not half, would cost roughly $50 per share against the base case. A full tax loss costs about $8 per share. MARGIN-OF-SAFETY PRICE: $78. Earnings level: fairly sure; three straight years of $2.1 to $2.6 billion and an independent income-statement build agree. Worst plausible outcome: losing CVS entirely plus a full tax loss, which no case models in full; the structure survives it (72% of revenue comes from other customers, and the $1.9 billion of debt due within a year is covered by $4.9 billion of cash) but shareholders' book equity is already negative $2.9 billion, so there is no cushion. If we are wrong on CVS or the IRS, value falls toward the bear figure of $95.66 or lower. The price assumes a holding period of three to three and a half years. Over that period the business pays a dividend of $2.06 per share, and it bought back $1.4 billion of stock in fiscal 2026, with a new $5.0 billion authorization. At $78 the cash left to owners after interest, tax, stock compensation, upkeep spending and the settlement installment ($7.04 per share in fiscal 2026) is a 9% yield, before any growth from the practice platforms that we did not credit. From $78, with about $7 of dividends, the base case value of $137.32 implies roughly 20% a year over three to three and a half years, and the bear case value is above the price.