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CVS Health Prescription Volume Solid, Price Cut Woes Stay

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On Nov 10, we issued an updated research report on CVS Health (CVS - Free Report) . Increasing demand for both Pharmacy Benefit Management (PBM) and specialty pharmacy is a steady key driver. The company currently carries a Zacks Rank #3 (Hold).

Over the past three months, shares of CVS Health have outperformed its industry. The stock has rallied 3.5%  against 3.5% decline of its industry.

CVS Health ended the third quarter of 2020 with both earnings and revenues surpassing the respective Zacks Consensus Estimate. Revenues increased year over year primarily driven by strong underlying core growth across Retail/LTC and Health Care Benefits segments. Retail/LTC revenue rise was primarily driven by increased prescription volume and higher front store revenues.

The Health Care Benefits arm benefited from strong Medicare AEP (Annual Enrollment Period) driven by CVS Health’s leading position in zero premium plans, expanded geographic footprint and continued acceleration of dual D-SNP offerings.

Moreover, while Pharmacy Services revenues declined year over year, this segment delivered double-digit operating income growth, reflecting strength in specialty pharmacy along with favorable purchasing economics. The 2021 selling season too is wrapping up well with net new business generation of $3.3 billion so far. Increased guidance amid the pandemic scenario is a positive.

CVS Health’s specialty digital solutions for patients witnessed a  CAGR of 25% over the past two years. Since the start of the pandemic the company has seen more than 40% of all specialty orders being placed digitally. In this period, CVS Health’s consumer centric digital strategy has become even more relevant with people using technology more while they stay at home. So far in this period, the company has achieved higher levels of engagement across its digital assets. This trend began in January and accelerated with COVID-19.

In terms of COVID-19 testing, till the time of the third-quarter earnings release, the company conducted more than six million tests, representing about 70% of the testing done in a retail setting nationwide and doubled the number of testing sites across the country to more than 4,000. Return Ready, the company’s comprehensive B2B testing product, is helping its clients get back to the work site or school by offering testing and support services directly to employers and educators.

On the flip side, in the third quarter, CVS Health Pharmacy Services revenues were down 0.9% on continued client losses and price compression. Within Retail/LTC, the company faced continued reimbursement pressure and the impact of recent generic introductions.

Stocks to Consider

A few better-ranked stocks from the broader medical space are Hologic (HOLX - Free Report) , BioRad Laboratories  (BIO - Free Report) and IDEXX Laboratories  (IDXX - Free Report) .

Hologic currently has a Zacks Rank #1 (Strong Buy) and a historical long-term earnings growth rate of 18.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

BioRad’s historical long-term earnings growth rate remains at 14.4%. The company currently carries a Zacks Rank #2 (Buy).

Vapotherm’s long-term historical earnings growth rate is 19.9%. It currently holds a Zacks Rank of 2.

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