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CVS Health's (CVS) New Measures to Boost Omnichannel Health

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CVS Health Corporation CVS recently announced several measures to support its ongoing strategy of making health care more affordable, accessible and convenient for consumers. With the announcement of several new measures, the company is focused on the competitive advantage provided by the presence in communities across the country. This factor complements CVS Health’s rapidly-expanding digital presence.

The company announced several executive leadership appointments and shared plans to close approximately 300 stores a year for the next three years. These changes will begin in the spring of 2022.

Leadership Position Transitions

The company appointed Mr. Prem Shah (the current executive vice president, Specialty Pharmacy and Product Innovation) for the newly-created role of chief pharmacy officer. Shah will oversee the entire omnichannel pharmacy strategy.

On Jan 1, 2022, Shah and Michelle Peluso (the company’s current executive vice president and chief customer officer) will become co-presidents of CVS Health’s retail business, with Peluso overseeing front-store strategy and operations.

In connection with the new leadership appointments, Neela Montgomery -- currently executive vice president and president, CVS Retail/Pharmacy, has decided to leave the company.

More on the New Initiatives

As part of the company's strategic review of the retail business, CVS Health will also develop new store formats to accelerate higher customer engagement.

The company stated that three diverse models will serve as community health destinations, including sites intended to offer primary care services, an improved version of HealthHUB locations with products and services designed for everyday health and wellness needs, and traditional CVS Pharmacy stores that offers prescription services and health, wellness, personal care as well as other convenient retail offerings.

Financial Implications

In association with the planned closing of the stores, the company expects to record impairment expenses of $1.00-$1.20 billion or 56-67 cents of diluted earnings per share (EPS) in fourth-quarter 2021.

As a result of the planned store closures, the company also revised its full-year 2021 adjusted EPS guidance range to $5.46-$5.67 from $6.13-$6.23. The impairment expenses are excluded from the company's calculation of adjusted EPS. The Zacks Consensus Estimate for the same is pegged at $7.94.

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The company projects the impact to adjusted EPS to be immaterial in 2021 and 2022 and modestly accretive in 2023 and thereafter.

Recent Developments

CVS Health has been making significant progress in business banking on strength across all three of its operation segments.

During third-quarter 2021, the company witnessed strong demand for integrated solutions across the healthcare continuum, including health management programs for chronic conditions, mental health support, pharmacy services, and health and wellness products in the reported quarter.

The retail segment reported above-market growth and exceeded the company’s expectations with 10% revenue growth. Pharmacy services outperformed the company’s expectations, delivering a 9.3% revenue increase and strong operating income growth. Specialty pharmacy revenues were up 8.7% year over year. The company noted that it is enhancing consumers’ experience by expanding digital services and platforms that connect to health services and in-person channels for more than 35 million unique digital customers.

Price Performance

Shares of the company have gained 43.6% in a year’s time compared with the industry’s rise of 36.8%.

Zacks Rank and Other Key Picks

CVS Health currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks from the broader medical space are Chemed Corporation CHE, Laboratory Corporation of America Holdings, or LabCorp LH and Medpace Holdings, Inc. MEDP, each carrying a Zacks Rank #2.

Chemed has a long-term earnings growth rate of 7.7%. The company surpassed earnings estimates in three of the trailing four quarters and missed in one. It has a trailing four-quarter earnings surprise of 5.6%, on average.

Chemed has outperformed its industry in the past year. CHE has gained 3.7% against a 35.6% decline of the industry.

LabCorp reported third-quarter 2021 adjusted EPS of $6.82, which surpassed the Zacks Consensus Estimate by 42.9%. Revenues of $4.06 billion outpaced the Zacks Consensus Estimate by 13.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LabCorp has an estimated long-term growth rate of 10.6%. LH surpassed estimates in the trailing four quarters, the average surprise being 25.7%.

Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.

Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.


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