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CVS Health Rides on Aetna Synergy, PBM Selling Season Modest

Zacks Equity Research
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On Feb 22, we issued an updated research report on CVS Health CVS. An increasing demand for Pharmacy Benefit Management (PBM) and specialty pharmacy was a major growth driver for the stock. The company currently carries a Zacks Rank #3 (Hold).

CVS Health ended fourth-quarter 2018 on a promising note with better-than-expected results. The year-over-year growth in the top line was driven by a strong Pharmacy Services segment, benefiting from the upside in specialty services.

In the last reported quarter, CVS Health completed the $70-billion consolidation of Aetna, marking the creation of a new healthcare powerhouse. The consolidated entity combines CVS Health’s pharmacy business with Aetna’s insurance base. Following this, CVS Health introduced Health Care Benefits segment, which holds immense potential.

With regard to its 2019 PBM selling season, CVS Health notes that the net benefits from this selling season are expected to be modest on Anthem-related headwinds. However, the retention rate is 98% currently, higher than the rates it has seen over the last few years.

We note that despite tough pricing competition, CVS Health is doing well on high levels of service and execution, competitive pricing along with unique integrated model that allows the company to provide differentiated products and services that generate savings, better health outcomes and convenience.

On the flip side, CVS Health expects to see fewer RFP (Requests for Proposals) opportunities in the market than what it has seen over the past few years. This might pose an obstacle to its PBM selling season performance in the coming quarters. Also, according to CVS Health, Omnicare business performance should continue to remain soft through 2019.

Key Picks

A few better-ranked stocks in the MedTech space are Surmodics, Inc SRDX, Abbott Laboratories ABT and Cardiovascular Systems, Inc. CSII.

Surmodics has a long-term expected earnings growth rate of 10%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abbott’s long-term earnings growth rate is projected to be 11.7%. The stock carries a Zacks Rank #2 (Buy).

Cardiovascular Systems exceeded the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat being 77.1%. The stock sports a Zacks Rank of 1.

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