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Here's Why You Should Retain CVS Health (CVS) Stock For Now
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CVS Health Corporation (CVS - Free Report) is well poised for growth on continued improvement in its specialty digital solutions. Moreover, better-than-expected results in the second quarter of 2021 and bullish full-year outlook buoy optimism. Yet, poor macroeconomic conditions and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 46.8% compared with the industry’s 43.1% growth and the S&P 500’s 32% rise.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $111.98 billion. The company projects 6.4% growth for the next five years and expects to maintain strong segmental performance. The company surpassed estimates in the trailing four quarters, the average surprise being 16.06%.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Key Growth Drivers
Q2 Upsides: CVS Health's second-quarter earnings and revenues surpassed the Zacks Consensus Estimate. Revenues across all the three operating segments improved in the quarter. Within pharmacy services, growth outperformed the company’s expectations, delivering 9.8% revenue growth and robust operating income growth. Specialty pharmacy revenues rose 8.9% year over year. The company added nearly 1 million new integrated pharmacy and medical members through the 2021 and 2022 selling seasons alone. Within healthcare benefits, results were strongly driven by growth in government business. While the medical benefit ratio of 84.1% was modestly above expectations due to COVID-related costs, underlying non-COVID costs emerged favorably.
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 has been seeing a significant part of its specialty orders being placed digitally. According to the company’s second-quarter update, it regularly serves more than 35 million unique digital customers across CVS Health assets. In the second quarter, the company saw more than 37% of specialty prescriptions initiated digitally from the 85% of pharmacy specialty members who have opted into the CVS Health digital program. CVS Health is expanding access to care through digital and virtual channels. 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.
Image Source: Zacks Investment Research
Bullish Guidance: CVS Health raised its 2021 adjusted earnings per share (EPS) guidance. Adjusted EPS is expected in the band of $7.70-$7.80 (compared with the earlier $7.56-$7.68). Full-year operating cash flow projection has been raised to the range of $12.5-$13 billion ($12-$12.50 billion).
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Poor Macroeconomic Conditions: Although prescriptions and related health care service providers like CVS stay out of general macro-economic turmoil, the recent debt crisis and sluggish economic conditions in the United States could impact consumers’ purchasing power. This may also influence preferences and spending patterns and result in low prescription utilization.
Competitive Landscape: Despite significant new client wins in a strong selling season, intense competition and harsh industry conditions are major impediments. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses.
Estimate Trends
CVS Health is witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 2.5% north to $7.84.
The Zacks Consensus Estimate for its third-quarter 2021 revenues is pegged at $70.23 billion, suggesting 4.7% growth from the year-ago reported number.
Image: Bigstock
Here's Why You Should Retain CVS Health (CVS) Stock For Now
CVS Health Corporation (CVS - Free Report) is well poised for growth on continued improvement in its specialty digital solutions. Moreover, better-than-expected results in the second quarter of 2021 and bullish full-year outlook buoy optimism. Yet, poor macroeconomic conditions and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 46.8% compared with the industry’s 43.1% growth and the S&P 500’s 32% rise.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $111.98 billion. The company projects 6.4% growth for the next five years and expects to maintain strong segmental performance. The company surpassed estimates in the trailing four quarters, the average surprise being 16.06%.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Key Growth Drivers
Q2 Upsides: CVS Health's second-quarter earnings and revenues surpassed the Zacks Consensus Estimate. Revenues across all the three operating segments improved in the quarter. Within pharmacy services, growth outperformed the company’s expectations, delivering 9.8% revenue growth and robust operating income growth. Specialty pharmacy revenues rose 8.9% year over year. The company added nearly 1 million new integrated pharmacy and medical members through the 2021 and 2022 selling seasons alone. Within healthcare benefits, results were strongly driven by growth in government business. While the medical benefit ratio of 84.1% was modestly above expectations due to COVID-related costs, underlying non-COVID costs emerged favorably.
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 has been seeing a significant part of its specialty orders being placed digitally. According to the company’s second-quarter update, it regularly serves more than 35 million unique digital customers across CVS Health assets. In the second quarter, the company saw more than 37% of specialty prescriptions initiated digitally from the 85% of pharmacy specialty members who have opted into the CVS Health digital program. CVS Health is expanding access to care through digital and virtual channels. 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.
Bullish Guidance: CVS Health raised its 2021 adjusted earnings per share (EPS) guidance. Adjusted EPS is expected in the band of $7.70-$7.80 (compared with the earlier $7.56-$7.68). Full-year operating cash flow projection has been raised to the range of $12.5-$13 billion ($12-$12.50 billion).
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Poor Macroeconomic Conditions: Although prescriptions and related health care service providers like CVS stay out of general macro-economic turmoil, the recent debt crisis and sluggish economic conditions in the United States could impact consumers’ purchasing power. This may also influence preferences and spending patterns and result in low prescription utilization.
Competitive Landscape: Despite significant new client wins in a strong selling season, intense competition and harsh industry conditions are major impediments. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses.
Estimate Trends
CVS Health is witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 2.5% north to $7.84.
The Zacks Consensus Estimate for its third-quarter 2021 revenues is pegged at $70.23 billion, suggesting 4.7% 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) , BellRing Brands, Inc. (BRBR - Free Report) and Henry Schein, Inc. (HSIC - 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 27%.
BellRing Brands has an expected long-term earnings growth rate of 29%.
Henry Schein has a projected long-term earnings growth rate of 14%.