Here's Why You Should Retain CVS Health (CVS) Stock for Now
CVS Health Corporation CVS is well poised for growth, backed by the continued growth across the entire range of insured and self-insured medical, pharmacy, dental and behavioral health products and services. The acquisition of Oak Street Health is expected to advance CVS Health’s care delivery strategy for consumers. However, poor macroeconomic conditions and stiff competition are headwinds.
In the past year, the Zacks Rank #3 (Hold) stock has lost 29.8% compared with the industry’s 30.4% fall and the S&P 500’s 3.2% rise.
The pharmacy innovation company, with integrated offerings across the entire spectrum of pharmacy care, has a market capitalization of $93.23 billion. The company projects a 6.4% growth for the next five years. It surpassed estimates in the trailing four quarters, the average surprise being 4.8%.
Riding on current business growth and bullish near-term prospects, the company is worth retaining.
Key Growth Catalysts
Health Care Benefit Shows Potential: Following the colossal acquisition of health insurance giant Aetna for an enormous sum of $70 billion, CVS Health introduced its Health Care Benefits business. The segment has been exhibiting continued strong momentum in the past few quarters. In the second quarter of 2023, the company’s registered revenues were up 17.6% year over year. The upside was driven by growth across all product lines. Membership in the second quarter increased by 121 thousand members from prior-year levels. The significant increase in the individual exchange business primarily drove the upside.
Health Services Business Gaining Traction: Health Services revenues were up 7.6% in the second quarter of 2023. The upside was primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health, partially offset by continued client price improvements.
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In May 2023, CVS Health completed its acquisition of Oak Street Health. The buyout will broaden CVS' value-based primary care platform and improve patients’ long-term health through better outcomes and lower costs — particularly for those in underserved communities.
Pharmacy & Consumer Wellness on a Growth Track: During the second quarter, the company noted that its considerable expansion in retail pharmacy led to significant market share increases over time. The company’s impressive growth was driven by increased prescription and front store volume, pharmacy drug mix and brand inflation. Prescriptions filled inched up 1.1% on a 30-day equivalent basis for the three months ended June 30, 2023, compared with the prior year’s levels. The upside was primarily driven by increased utilization.
Downsides
Competitive Landscape: Despite significant new client wins in the course of a strong selling season, intense competition and tough industry conditions act as major impediments. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses. Competition is especially tough in the pharmacy segment as other retail businesses continue to add pharmacy departments and low-cost pharmacy options become available. Discount retailers, in particular, have made substantial inroads in gaining market share.
Poor Macroeconomic Condition: Although prescriptions and related health care service providers like CVS stay out of general macroeconomic turmoil, the recent debt crisis and sluggish economic conditions in the United States could impact consumer purchasing power. This may also influence preferences and spending patterns, resulting in low prescription utilization.
Estimate Trends
In the past 90 days, the Zacks Consensus Estimate for its fiscal 2023 earnings has been down 0.3% at $8.62.
The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $350.9 billion, suggesting an 8.8% rise from the year-ago reported number.
Key Picks
Some other top-ranked stocks in the broader medical space are Penumbra, Inc. PEN, Integer Holdings Corporation ITGR and Patterson Companies, Inc. PDCO.
Penumbra, sporting a Zacks Rank of 1 (Strong Buy), reported second-quarter 2023 adjusted earnings per share (EPS) of 43 cents, beating the Zacks Consensus Estimate by 53.6%. Revenues of $261.5 million outpaced the consensus mark by 3.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Penumbra has a 2024 estimated growth rate of 57.9%. PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 94.2%.
Integer Holdings reported second-quarter 2023 adjusted EPS of $1.14, beating the Zacks Consensus Estimate by 15.2%. Revenues of $400 million surpassed the Zacks Consensus Estimate by 8.9%. It currently carries a Zacks Rank #2.
Integer Holdings has a long-term estimated growth rate of 12.1%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 8.4%.
Patterson Companies has an Earnings ESP of +5.66% and a Zacks Rank of 1. PDCO has an estimated long-term growth rate of 9.2%.
Patterson Companies’ earnings surpassed estimates in three of the trailing four quarters and missed once, with the average surprise being 4.5%.
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CVS Health Corporation (CVS) : Free Stock Analysis Report
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