Given the recent completion of the AccessClosure purchase and the approach of 2015 guidance, we are updating our longer-term modeling assumptions for Cardinal Health. Specifically, we are adjusting our model for AccessClosure, the fiscal third quarter’s actual results, and the longer-term potential from both preferred products in the medical segment and generic recapture in the pharmaceutical segment.
We detail our assumptions behind all four of these factors below, but in aggregate, our confidence has increased that Cardinal can deliver EPS growth toward the midpoint of its stated 10%-15% long-term guidance range in the coming three years. We had previously projected 10%. We are leaving our fiscal 2014 EPS estimate unchanged at $3.82, but we are increasing our fiscal 2015 target by $0.10, to $4.32 (up 13%), and our fiscal 2016 target by $0.25, to $4.88 (up 13%), to better reflect the potential of the factors mentioned above. Exhibit 1 below summarizes the key drivers behind our model changes.
We believe the next key event for the stock will be fiscal 2015 earnings guidance, which we expect to be delivered on the fiscal fourth-quarter call in early August. Given the recent correction in Cardinal Health and our more optimistic earnings outlook for the next few years, we reiterate our Outperform rating.
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