Cardinal Health SWOT and PESTLE Analysis

Strength

1. Wide range of products and services offered: Cardinal Health offers Services, Professional Products and Consumer Products. Consumer products cover Advanced Wound Care, First Aid, Home Health Care and Personal Care products. The Company's strength flows from four cardinal verticals - logistics, product, business and patient solutions. With one of America's largest distribution network, the Company helps streamline supply chain, discover cost reduction channels, improve performance and make logistics and business smarter through its offerings in Acute Care, Retail Pharmacy, Physician Office, Pharmaceutical and Medical manufacturers. The product solutions are divided under Medical, Pharmaceutical, Support Services and Consumer Products. The patient solutions cover Acute, Retail Pharmacy and Payer. It consists of 2 financial reporting segments – Pharmaceutical, which clocked revenues of $116 Bn with a segment profit of $ 2.2 Bn and Medical, which recorded revenues of $13.5Bn with a segment profit of $ 572 M in FY 2017.

Cardinal Health serves more than 24,000 pharmacies, sourcing over 4 lacs unique products, catering to over 85% hospitals in the U.S.A, serving more than 2million patients with over 50K homecare products globally. The Company has raised the global standard of care, be it developing health care systems containing binary sites, imaging or real-time healthcare services, electronic image management systems are being benchmarked as the new standards of care. They serve 10,000 specialty physician offices and clinics with over 72K laboratory products to more than 5800 labs.

2. Presence in both manufacturing and distribution: Cardinal Health has a wide network to which it supplies the products and services. This is because it is into both drugs and medical equipmentselling. The pharmaceutical products like drugs are only supplied by the company but medical equipment are manufactured by them. So, being in both the businesses expands their reach and makes their presence more substantial. Red Oak Sourcing, which is a joint venture with CVS Health, the largest pharmacy health care provider in the United States and a Fortune 20 company, shoulders sole responsibility for generic pharmaceutical sourcing for the retail division and pharmacy benefit manager - representing 85% of the pharmaceutical product volume of the two companies – making Red Oak one of the largest generic sourcing entities in America.

Cardinal Health nurses a well-knit network, which includes complex contracting, global sourcing, extensive regulatory interfaces, and a vital interconnection between manufacturers, providers, and patients. This places the Company is a leadership position in one of the biggest, safest and most secure pharmaceutical supply chain network on the globe.

3. Strong presence in the United States: Around 85% of the hospitals in United States are covered by the supplies of Cardinal Health. This gives a clear picture of how vivid and deep-rooted their reach is in the United States. It is also a testimony of their excellent service as otherwise it would not have been possible to sustain such a huge volume. This is the biggest strength of Cardinal Health.

4. Strong financial performance sustained over consecutive five years: Cardinal Health has shown sustained growth performance across the period between FY 2012 to FY2017. GAAP CAGR is 5.7%, while non-GAAP CAGR stood at 11.0%.Operated earnings growth recorded 3.4% GAAP CAGR and 8.2% nn-GAAP CAGR. Total shareholder return was 106.2%, with dividend per share growth standing tall at 16% CAGR. During this period, $8.6 bn was reinvested in business and $5.7 bn was returned to shareholders.

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Weakness

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Opportunity

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Threat

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References

1. Cardinal HealthAnnual Report 2017:https://s1.q4cdn.com/238390398/files/doc_financials/annual/2017/2017_Cardinal-Health_AR-FINAL.pdf

2. Company website: https://www.cardinalhealth.com/en.html

Political

1. Political and legal repercussions from the opioid epidemic: Opioids has become one of the deadliest drug epidemics in U.S. history claiming more than 2000,000 lives. Few Congressmen including Tom Marino from Pennsylvania have been accused of allying with major drug distributors in the United States and passing an industry-friendly law in 2016- Ensuring Patient Access and Effective Drug Enforcement Act. The new law has significantly curtailed the Drug Enforcement Administration (DEA) power to stem the unauthorized flow of opioids by making it difficult to suspend a drug company’s operations for failing to comply with federal law. The Political action committees representing major players from the medical distribution industry including cardinal Health have contributed at least $1.5 million to the above Congressmen on lobbying. The Trump administration has signaled in 2018 that it plans to roll out "strong" policies on opioid abuse by drug dealers. This may impact the operations of the entire health care supply chain and companies such as Cardinal Health.

2. Divestiture of China distribution business due to government reforms: Cardinal Health was forced to sell of its distribution business in China in wake of the impending nationwide pharma reforms. The company believes this would slow its growth and pressure for future profitability once the regulations set in. Similar regulations in other countries may further impact its foreign business and ultimately impact its financials.

Economic

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Social

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Technological

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Legal

1. Relaxed regulatory approvals in commodity medical supplies: Commodity medical supplies distribution in health care has seen increase in competition because it does not involve complex regulatory approvals. Further many states do not require a separate license for the same and thus it has low entry barriers. Amazon has recently entered the commodity medical supplies business and has an upper hand as it can leverage its technology-oriented solutions and supply chain expertise. This will mean increased competition to other industry players such as Owens & Minor, Cardinal Health, McKesson and Medline Industries.

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Environmental

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References

1. Cardinal Health Annual Report 2017: https://s1.q4cdn.com/238390398/files/doc_financials/annual/2017/2017_Cardinal-Health_AR-FINAL.pdf

2. Company website: https://www.cardinalhealth.com/en.html