AmerisourceBergen Corporation (NYSE:ABC) and Cardinal Health, Inc. (NYSE:CAH) are both Services companies that recently hit new highs. Many investors are wondering what to do with these names trading at such extreme levels. To determine if one is a better investment than the other, we will compare the two across growth, profitability, risk, return, dividends, and valuation measures.
AmerisourceBergen Corporation (NYSE:ABC) operates in the Drugs Wholesale segment of the Services sector. The company has grown sales at a 14.40% annual rate over the past five years, putting it in the high growth category. ABC has a net profit margin of 0.20% and is more profitable than the average company in the Drugs Wholesale industry. In terms of efficiency, ABC has an asset turnover ratio of 4.43. This figure represents the amount of revenue a company generates per dollar of assets. ABC’s financial leverage ratio is 14.9, which indicates that the company’s asset base is primarily funded by debt. Company’s return on equity, which is really just the product of the company’s profit margin, asset turnover, and financial leverage ratios, is 15.70%, which is better than the Drugs Wholesale industry average ROE.
AmerisourceBergen Corporation (ABC) pays out an annual dividend of 1.52 per share. At the current valuation, this equates to a dividend yield of 1.75%. The company has a payout ratio of 87.20%. ABC’s current dividend therefore should be sustainable. Stock’s free cash flow yield, which represents the amount of cash available to investors before dividends, expressed as a percentage of the stock price, is 6.36. All else equal, companies with higher FCF yields are viewed as cheaper. Company trades at a P/E ratio of 53.43 , and is more expensive than the average stock in the Drugs Wholesale industry. The average investment recommendation for ABC, taken from a group of Wall Street Analysts, is 2.30, or a buy.
Over the past three months, AmerisourceBergen Corporation insiders have been net buyers, dumping a net of -178,344 shares. This implies that insiders have been feeling relatively bearish about the outlook for ABC. Insider activity and sentiment signals are important to monitor because they can shed light on how “risky” a stock is perceived to be at it’s current valuation. Knowing this, it makes sense to look at beta, a measure of market risk. ABC has a beta of 0.98 and therefore an below average level of market volatility.
Cardinal Health, Inc. (NYSE:CAH) operates in the Drugs Wholesale segment of the Services sector. CAH has increased sales at a 3.90% CAGR over the past five years, and is considered a low growth stock. The company has a net profit margin of 0.80% and is more profitable than the average Drugs Wholesale player. CAH’s asset turnover ratio is 3.45 and the company has financial leverage of 5.27. CAH’s return on equity of 16.50% is better than the Drugs Wholesale industry average.
Cardinal Health, Inc. (CAH) pays a dividend of 1.85, which translates to dividend yield of 3.07% based on the current price. Stock has a payout ratio of 52.30%. According to this ratio, CAH should be able to continue making payouts at these levels. The company trades at a free cash flow yield of 5.03 and has a P/E of 17.55. Compared to the average company in the 22.74 space, CAH is relatively cheap. The average analyst recommendation for CAH is 3.00, or a hold.
Cardinal Health, Inc. insiders have bought a net of 62,833 shares during the past three months, which implies that the company’s top executives have been feeling bullish about the stock’s outlook. Finally, CAH’s beta of 0.85 indicates that the stock has an below average level of market risk.
AmerisourceBergen Corporation (NYSE:CAH) scores higher than Cardinal Health, Inc. (NYSE:ABC) on 9 of the 13 measures compared between the two companies. CAH has the better fundamentals, scoring higher on profitability, leverage and return metrics. CAH’s dividend is more attractive. CAH has better insider activity and sentiment signals.