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CVS Health (CVS) Scales a 52-Week High: What's Driving It?

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CVS Health Corporation (CVS - Free Report) reached a new 52-week high of $99.33 on Dec 13, before closing the session marginally lower at $98.90.

The company’s shares have charted a solid trajectory in recent times, appreciating 41.5% over the past year, ahead of the 32.7% rise of the industry it belongs to and 28.2% surge of the S&P 500 composite.

Over the past five years, the company registered earnings growth of 8.1%, ahead of the industry’s 6.1% rise and the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 6.7% compares with the industry’s growth projection of 5.6% and the S&P 500’s estimated 11.6% increase.

CVS Health is well poised for growth in the coming quarters, backed by strength across the Health Care Benefits and Pharmacy Services business segments. Solid year-over-year growth in the Retail Long Term Care business buoys optimism. Ongoing rebound in front-store sales also appears promising. A good solvency position bodes well for the stock.

Zacks Investment ResearchImage Source: Zacks Investment Research

Let’s delve deeper.

Key Drivers

Health Care Benefit Shows Potential: The market is upbeat about CVS Health’s Health Care Benefits business arm, which was introduced following the acquisition of health insurance giant Aetna. During the third quarter, this business delivered strong revenue growth fueled by continued growth in Government Services. The segment also reported a medical benefit ratio of 85.8%, driven by COVID-related costs. In addition to strong performance in the core business, the company is benefitting from the broad and unique portfolio of assets with the first CVS-Aetna co-branded offerings.

Pharmacy Services Business Gaining Traction: CVS Health delivered better-than-expected results, banking on strong momentum in specialty pharmacy in the third quarter. Pharmacy revenues increased 9.3% year over year, driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation. Meanwhile, total pharmacy membership increased by 1.6 million sequentially, primarily reflecting growth in government programs. The company maintained an impressive 98% retention rate in the reported quarter, with more than 98% of renewals completed by the quarter-end. Further, CVS Health has extended its contract with Centene through 2022, raising our optimism.

Retail on a Growth Track: CVS Health’s Retail Long Term Care business witnessed year-over-year growth of 10% in the third quarter. Pharmacy sales and prescriptions filled increased 8% year over year on COVID-19 vaccine administration and core pharmacy services. In addition, there was a strong rebound in front-store sales across all categories, led by consumer demand for COVID-19 home-testing kits, cough and cold products. It is also worth noting that CVS Health administered 43 million vaccines and nearly 38 million tests till the end of the third quarter.

Stable Solvency Position: CVS Health ended the third quarter of 2021 with cash and cash equivalents of $9.8 billion. Meanwhile, total debt came at $58.39 billion, much higher than the corresponding cash and cash equivalent level. On a positive note, the company’s near-term payable debt of $1.5 million is much less than the cash and cash equivalents figure. This is good news in terms of the company’s solvency level, as at least during the year of economic downturn, the company is holding sufficient cash for debt repayment.


A host of factors have been deterring CVS Health’s rally of late.

Mounting operating costs are building significant pressure on the company’s bottom line, resulting in a contraction of both margins during the third quarter. Ongoing pharmacy reimbursement pressure in the Pharmacy Services and Retail/LTC segments will likely impede CVS Health’s growth further.

Zacks Rank and Key Picks

Currently, CVS Health carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Varex Imaging Corporation (VREX - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .

AMN Healthcare, carrying a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average. You can see the complete list of today’s Zacks #1 Rank  stocks here.

AMN Healthcare has outperformed its industry over the past year. AMN has gained 56.8% versus the 58.2% industry decline.

Varex, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 115.3%.

Varex has outperformed the industry it belongs to in the past year. VREX has gained 62.9% versus the industry’s 3.7% fall.

West Pharmaceutical, sporting a Zacks Rank #2, has a long-term earnings growth rate of 27.6%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 29.4%.

West Pharmaceutical has outperformed its industry over the past year. WST has rallied 65% versus the industry’s 13.5% rise.

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