What does the guidance for FY2026 imply about future earnings growth and valuation multiples?

What the FY‑2026 guidance means for earnings growth and valuation

Cardinal Health’s decision to lift its FY‑2026 outlook after a flat‑to‑slightly‑up Q4 (revenues ≈ $60 bn, GAAP operating earnings $428 m, diluted EPS $1.00) signals that management expects a step‑up in profitability rather than a simple continuation of the current level. The “raise” in guidance is typically anchored to a higher projected EPS or operating margin, which translates into mid‑single‑digit earnings‑growth rates year‑over‑year for the next 12‑18 months. Because revenue is essentially unchanged, the growth is coming from improved cost‑structure, better pricing power, or the offset of the contract‑expiration hit that was previously subtracted out. In other words, the company is betting that operating efficiency and the “ex‑contract‑expiration” tailwinds will lift earnings faster than the top line.

From a valuation standpoint, the market will now price those higher earnings against a larger forward‑looking multiple. If analysts already had a FY‑2025 P/E in the 9‑10× range, the upgraded FY‑2026 earnings forecast will likely push the forward‑12‑month P/E into the high‑10s to low‑12× territory—still modest for a large, stable distributor but higher than the current “flat‑growth” baseline. The key is whether the implied multiple is justified by the durability of the margin improvements. If the market believes the cost‑saving narrative is sustainable, the higher multiple can be supported; if not, the stock could face multiple compression once the FY‑2026 results materialize.

Trading take‑aways

• Long‑biased on a pull‑back: The stock has been under pressure from a flat Q4, so a modest dip into the $140‑$145 range could offer a better entry point before the FY‑2026 earnings window (Q2‑Q3 2025) when the upgraded guidance is fully reflected.
• Watch the 200‑day moving average (~$150) and the $155 resistance: A break above $155 with volume could indicate the market is already pricing in the higher multiple, limiting upside.
• Monitor margin trends: Any surprise on cost‑saving initiatives or pricing pressure will quickly adjust the earnings trajectory and either validate the higher multiple or trigger a sell‑off. A tight stop just below the 200‑day line (≈ $148) can protect against a sudden compression if the earnings story falls short.