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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 in the coming months, backed by continued improvement in its consumer-centric digital solutions. The raised full-year guidance buoys optimism on the stock. Yet, poor macroeconomic conditions and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 37% compared with the industry’s 27.9% rise and the S&P 500’s 23.8% rise.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $137.54 billion. The company projects 6.7% growth for the next five years. It surpassed estimates in the trailing four quarters, the average surprise being 12.60%.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Key Growth Drivers
COVID-19 Crisis Drives Digital Growth: During the third-quarter earnings update, CVS Health noted that it is strengthening the consumer experience by expanding digital services and platforms that connect to health services and in-person channels. Currently, the company has more than 70% of CVS Pharmacy customers enrolled in text-messaging programs. The company also expanded digital capabilities to provide universal access to CVS Health vaccination records to the millions of adults that have been vaccinated. This new capability has driven more than 1 million visits per month to the vaccination records on cvs.com.
Health Care Benefit Shows Potential: Following the colossal acquisition of health insurance giant Aetna for a colossal sum of $70 billion, CVS Health introduced its Health Care Benefits business arm. This segment has already started to show strong momentum, particularly in the government business. In the third quarter, this business delivered strong revenue growth fueled by continued growth in Government Services. During the quarter, its medical benefit ratio of 85.8% was above expectations, driven by COVID-related costs. Underlying non-COVID costs emerged favorably. CVS Health believes that aggregate medical costs will slightly exceed baseline levels in 2021.
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Raised Guidance: CVS Health raised its 2021 adjusted earnings per share (EPS) guidance. Adjusted earnings per share are expected in the band of $7.90-$8.00 (compared with the earlier range of $7.70-$7.80). Full-year operating cash flow projection has been raised to the range of $13.00-$13.50 billion (from the previous range of $12.50-$13.00 billion).
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Poor Macroeconomic Condition: 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 impact consumer purchasing power. This may also influence preferences and spending patterns and lead to low prescription utilization.
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.
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 2.6% north to $8.03.
The Zacks Consensus Estimate for its fourth-quarter 2021 revenues is pegged at $75.06 billion, suggesting 7.9% growth from the year-ago reported number.
AMN Healthcare, carrying a Zacks Rank #1, 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.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 65.9% versus the 56.9% industry decline.
Apollo Endosurgery, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7%. The company‘s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.
Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 109.2% against the industry’s 2.7% fall.
Laboratory Corporation surpassed earnings estimates in each of the trailing four quarters, the average surprise being 25.7%. The company currently sports a Zacks Rank #1.
Laboratory Corporation’s long-term earnings growth rate is estimated at 10.6%. The company’s earnings yield of 9.4% compares favorably with the industry’s 3.4%.
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Here's Why You Should Retain CVS Health (CVS) Stock for Now
CVS Health Corporation (CVS - Free Report) is well poised for growth in the coming months, backed by continued improvement in its consumer-centric digital solutions. The raised full-year guidance buoys optimism on the stock. Yet, poor macroeconomic conditions and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 37% compared with the industry’s 27.9% rise and the S&P 500’s 23.8% rise.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $137.54 billion. The company projects 6.7% growth for the next five years. It surpassed estimates in the trailing four quarters, the average surprise being 12.60%.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Key Growth Drivers
COVID-19 Crisis Drives Digital Growth: During the third-quarter earnings update, CVS Health noted that it is strengthening the consumer experience by expanding digital services and platforms that connect to health services and in-person channels. Currently, the company has more than 70% of CVS Pharmacy customers enrolled in text-messaging programs. The company also expanded digital capabilities to provide universal access to CVS Health vaccination records to the millions of adults that have been vaccinated. This new capability has driven more than 1 million visits per month to the vaccination records on cvs.com.
Health Care Benefit Shows Potential: Following the colossal acquisition of health insurance giant Aetna for a colossal sum of $70 billion, CVS Health introduced its Health Care Benefits business arm. This segment has already started to show strong momentum, particularly in the government business. In the third quarter, this business delivered strong revenue growth fueled by continued growth in Government Services. During the quarter, its medical benefit ratio of 85.8% was above expectations, driven by COVID-related costs. Underlying non-COVID costs emerged favorably. CVS Health believes that aggregate medical costs will slightly exceed baseline levels in 2021.
Raised Guidance: CVS Health raised its 2021 adjusted earnings per share (EPS) guidance. Adjusted earnings per share are expected in the band of $7.90-$8.00 (compared with the earlier range of $7.70-$7.80). Full-year operating cash flow projection has been raised to the range of $13.00-$13.50 billion (from the previous range of $12.50-$13.00 billion).
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Poor Macroeconomic Condition: 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 impact consumer purchasing power. This may also influence preferences and spending patterns and lead to low prescription utilization.
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.
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 2.6% north to $8.03.
The Zacks Consensus Estimate for its fourth-quarter 2021 revenues is pegged at $75.06 billion, suggesting 7.9% growth from the year-ago reported number.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Apollo Endosurgery, Inc. and Laboratory Corporation of America Holdings (LH - Free Report) . You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare, carrying a Zacks Rank #1, 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.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 65.9% versus the 56.9% industry decline.
Apollo Endosurgery, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7%. The company‘s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.
Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 109.2% against the industry’s 2.7% fall.
Laboratory Corporation surpassed earnings estimates in each of the trailing four quarters, the average surprise being 25.7%. The company currently sports a Zacks Rank #1.
Laboratory Corporation’s long-term earnings growth rate is estimated at 10.6%. The company’s earnings yield of 9.4% compares favorably with the industry’s 3.4%.