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CVS Health's (CVS) Front Store Sales Robust, LTC Suffers

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On Dec 28, 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 declined 8.5% compared with 14% decline of the industry.

CVS Health ended the third quarter of 2020 on a promising note with both earnings and revenues surpassing the respective Zacks Consensus Estimate. Particularly, Retail/LTC revenue rise was 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 $3.3 billion of net new business. Increased guidance amid the pandemic is a positive.

CVS Health’s specialty digital solutions for patients witnessed 25% CAGR over the last two years, and since the start of the pandemic, the company has seen over 40% of all specialty orders being placed digitally. 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.

On the flip side, in the third quarter of 2020, CVS Health registered Pharmacy Services revenues were down 0.9% on continued client losses and price compression. Within Retail/ Long Ter Care (LTC), the company faced continued reimbursement pressure and the impact of recent generic introductions.

The LTC business continues to facing some industry-wide challenges. Reimbursement risk continues to be a dampener.

Key Picks

Some better-ranked stocks from the broader medical space include Addus Homecare Corporation (ADUS - Free Report) , Chemed Corporation (CHE - Free Report) , DaVita Inc. (DVA - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Addus Homecare has a projected long-term growth rate of 15%.

Chemed has a projected long-term growth rate of 10.1%.

DaVita has a projected long-term growth rate of 18.3%.

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