). While Cardinal also distributes brand-name drugs to retail chains and hospitals--CVS, Walgreen, and the Mayo Clinic, for example--it makes more gross profit from generics. Anticipating the boom, investors have bid up Cardinal's stock, which has doubled in a year. It trades at 96--down from 105 in December. But "the best times are still ahead," says analyst Leonard Yaffe of Banc of America Securities. He has rated Cardinal a "strong buy" since 1995 and has a one-year price target of 130. Jonathan Green at Dresdner Kleinwort Wasserstein reiterated his "buy" rating on Apr. 12; his 12-month target is 120.
A strong balance sheet and revenue growth account for the upbeat forecasts. Cardinal's distribution business, which accounts for 80% of revenues, is growing at twice the industry average of 12%, as it continues to snatch market share from such rivals as McKesson. It also operates higher-margin services, including Pyxis, an automated drug-delivery system--rather like an ATM. "That mix can sustain a 23% earnings growth rate," says Yaffe. Merrill Lynch's analyst Owen Hughes notes that Cardinal's price-earnings ratio is 28, based on 2001 earnings per share of $3.40, and 23, based on next year's expected $4.07--a ratio 10% less than most large-cap drug stocks. Gene Marcial is on vacation.