Moody's Lifts Outlook on Cardinal Health (CAH) to Positive; Ratings Affirmed

Moody's Investors Service changed the rating outlook for Cardinal Health Inc. (NYSE: CAH) to positive from stable. At the same time, Moody's affirmed Cardinal Health's existing Baa2 senior unsecured and Prime-2 short term debt ratings.

Ratings affirmed:

Cardinal Health, Inc.

Senior unsecured notes at Baa2

Senior unsecured shelf at (P)Baa2

Short-term rating at Prime-2

RATING RATIONALE

"Cardinal Health has done a good job balancing the use of cash and debt to finance recent acquisitions," said Diana Lee, a Moody's Senior Credit Officer. In addition, Cardinal's expanding medical device manufacturing business will help boost profitability and improve diversification.

The positive outlook reflects Moody's view that Cardinal will likely sustain moderate leverage as it pursues acquisitions and shareholder initiatives. The outlook also reflects Moody's belief that operating profit levels will improve, as benefits from recent acquisitions offset customer re-pricing constraints and a slowdown in generic price inflation.

The ratings could be upgraded if Cardinal sustains expansion of its operating margins and profits and if the company funds acquisitions and shareholder initiatives prudently. If debt/EBITDA is sustained below 2.0 times, it could support an upgrade. The ratings could be downgraded if Cardinal experiences a material profit decline or contract loss or pursues large debt-financed acquisitions. If Moody's believes that debt/EBITDA will be sustained above 2.5 times, the ratings could be downgraded.

Cardinal Health's Baa2 rating reflects the company's position as one of the nation's leading drug and medical surgical distributors, a relatively sizeable revenue base, and Moody's expectation that financial leverage will remain moderate. The ratings also reflect the company's low (but improving) margins, customer concentration risk and a somewhat aggressive posture toward shareholder initiatives. Along with its core drug distribution business, Cardinal has a presence in manufacturing as well as distribution of medical products. It will likely continue to make acquisitions to help boost its slim margins. Cardinal's joint venture with CVS Health to purchase generic drugs will allow it to remain competitive as both of its peers, McKesson and AmerisourceBergen, have also pursued transactions aimed at leveraging their purchasing power.

The principal methodology used in these ratings was Distribution & Supply Chain Services industry published in December 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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