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Here's Why You Should Retain CVS Health (CVS) in Your Portfolio
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CVS Health Corporation (CVS - Free Report) is well poised for growth in the coming quarters backed by pharmacy services business gaining traction. The COVID-19 crisis drives the company’s digital growth as well. Moreover, the better-than-expected first-quarter 2021 results and bullish 2021 outlook buoy optimism. However, a poor macroeconomic scenario and stiff competition impede CVS Health’s growth.
Over the past year, shares of this Zacks Rank #3 (Hold) company have gained 24.4% compared with the industry’s 28.1% rise. The S&P 500 rose 34.1% during the same period.
The pharmacy innovation company, with integrated offerings across the entire spectrum of pharmacy care, has a market capitalization of $113.7 billion. The company projects 6.7% growth for the next five year. Further, it surpassed estimates in the trailing four quarters, delivering a surprise of 21%, on average.
Key Growth Drivers
Impressive Q1 Results: CVS Health's first-quarter earnings and revenues surpassed the Zacks Consensus Estimate. Revenues across all three operating segments improved and surpassed the company’s expectations. The company noted that its consumer-centric digital strategy has become more relevant in the current environment as people are using technology more while staying indoors. In the first quarter, the company achieved higher levels of engagement across digital assets. The raised full-year guidance is indicative of the continuation of this bullish trend through 2021.
Pharmacy Services Business Gaining Traction: In the first quarter, CVS Health delivered market-leading results in controlling drug costs for commercial clients. Specialty pharmacy revenues were up 7.2% year over year, reflecting net new wins on success in trend management program. The company is currently well positioned for continued growth in 2022.
COVID-19 Crisis Drives Digital Growth: CVS Health’s specialty digital solutions for patients saw a 25% CAGR over the past two years, and since the start of the pandemic the company is seeing a significant part of its specialty orders being placed digitally. The company has seen more than 80% growth in visits to its flagship digital properties on a year-over-year basis in the first quarter. Growth was primarily driven by engagement in expanded set of digital health services such as COVID testing, vaccinations and omni-channel pharmacy. As a major step toward adapting digital health, the company recently announced the launch of CVS Health Ventures fund that gives insight into new digital health innovations.
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.
Poor Macroeconomic Conditions: Although prescriptions and related health care service providers like CVS steer clear of general macro-economic 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 and result in low prescription utilization.
Estimate Trends
CVS Health is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 2% north to $7.64.
The Zacks Consensus Estimate for its second-quarter fiscal 2021 revenues is pegged at $70.36 billion, suggesting 7.7% growth from the year-ago reported number.
Envista Holdings has an estimated long-term earnings growth rate of 26%.
Inogen has an estimated long-term earnings growth rate of 33%.
IDEXX Laboratories has a projected long-term earnings growth rate of 20%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Image: Bigstock
Here's Why You Should Retain CVS Health (CVS) in Your Portfolio
CVS Health Corporation (CVS - Free Report) is well poised for growth in the coming quarters backed by pharmacy services business gaining traction. The COVID-19 crisis drives the company’s digital growth as well. Moreover, the better-than-expected first-quarter 2021 results and bullish 2021 outlook buoy optimism. However, a poor macroeconomic scenario and stiff competition impede CVS Health’s growth.
Over the past year, shares of this Zacks Rank #3 (Hold) company have gained 24.4% compared with the industry’s 28.1% rise. The S&P 500 rose 34.1% during the same period.
The pharmacy innovation company, with integrated offerings across the entire spectrum of pharmacy care, has a market capitalization of $113.7 billion. The company projects 6.7% growth for the next five year. Further, it surpassed estimates in the trailing four quarters, delivering a surprise of 21%, on average.
Key Growth Drivers
Impressive Q1 Results: CVS Health's first-quarter earnings and revenues surpassed the Zacks Consensus Estimate. Revenues across all three operating segments improved and surpassed the company’s expectations. The company noted that its consumer-centric digital strategy has become more relevant in the current environment as people are using technology more while staying indoors. In the first quarter, the company achieved higher levels of engagement across digital assets. The raised full-year guidance is indicative of the continuation of this bullish trend through 2021.
Pharmacy Services Business Gaining Traction: In the first quarter, CVS Health delivered market-leading results in controlling drug costs for commercial clients. Specialty pharmacy revenues were up 7.2% year over year, reflecting net new wins on success in trend management program. The company is currently well positioned for continued growth in 2022.
COVID-19 Crisis Drives Digital Growth: CVS Health’s specialty digital solutions for patients saw a 25% CAGR over the past two years, and since the start of the pandemic the company is seeing a significant part of its specialty orders being placed digitally. The company has seen more than 80% growth in visits to its flagship digital properties on a year-over-year basis in the first quarter. Growth was primarily driven by engagement in expanded set of digital health services such as COVID testing, vaccinations and omni-channel pharmacy. As a major step toward adapting digital health, the company recently announced the launch of CVS Health Ventures fund that gives insight into new digital health innovations.
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.
Poor Macroeconomic Conditions: Although prescriptions and related health care service providers like CVS steer clear of general macro-economic 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 and result in low prescription utilization.
Estimate Trends
CVS Health is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 2% north to $7.64.
The Zacks Consensus Estimate for its second-quarter fiscal 2021 revenues is pegged at $70.36 billion, suggesting 7.7% growth from the year-ago reported number.
Key Picks
A few better-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST - Free Report) , Inogen, Inc (INGN - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Envista Holdings has an estimated long-term earnings growth rate of 26%.
Inogen has an estimated long-term earnings growth rate of 33%.
IDEXX Laboratories has a projected long-term earnings growth rate of 20%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>