We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Here's Why You Should Retain CVS Health (CVS) Stock for Now
Read MoreHide Full Article
CVS Health Corporation (CVS - Free Report) is well poised for growth, backed by continued improvement in its consumer-centric digital solutions. The better-than-expected results for the fourth quarter buoy optimism on the stock. Yet, escalating costs and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 50.4% compared with the industry’s 31.8% rise and the S&P 500’s 13.3% growth.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $136.04 billion. The company projects 8.1% growth for the next five years. It surpassed estimates in the trailing four quarters, the average surprise being 11.91%.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Key Growth Catalysts
Impressive Q4 Results: CVS Health’s fourth-quarter 2021 earnings and revenues surpassed the Zacks Consensus Estimate. Revenues across all the three operating segments improved in the reported quarter. The company administered more than 8 million COVID-19 tests and more than 20 million COVID-19 vaccines nationwide in the fourth quarter of 2021. During the reported quarter, the company unveiled several steps to accelerate its omnichannel health strategy, including creating new store formats and optimizing its retail footprint to align with evolving customer needs.
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 fourth-quarter update, CVS.com is one of the top health websites with more than 2 billion visits in 2021, up nearly 55% over the prior year. The company now serves 40 million customers digitally, up approximately 10% in the last six months.
Image Source: Zacks Investment Research
Pharmacy Services Business Gaining Traction: In the fourth quarter, CVS Health delivered better-than-expected results, banking on strong momentum in specialty pharmacy. During the fourth quarter, pharmacy revenues increased 7.8% year over year, driven by higher pharmacy claims volume, growth in specialty pharmacy and brand inflation. Total pharmacy membership increased by 40,000 sequentially, primarily reflecting growth in government programs. Total pharmacy claims processed grew nearly 8.2% more than the prior-year quarter. The company maintained an impressive 98% retention rate by the end of the fourth quarter.
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Escalating Costs: During fourth-quarter 2021, total cost (including Benefit Cost) rose 9.3%. Gross margin contracted 63 basis points (bps) to 17.8%. Operating costs in the quarter rose 6.7% year over year. The rise in operating costs and gross margin contraction are building pressure on the bottom line.
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. Meanwhile, 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 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.4% north to $8.26.
The Zacks Consensus Estimate for its first-quarter 2022 revenues is pegged at $75.17 billion, suggesting 8.8% growth from the year-ago reported number.
Key Picks
Few better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 58.3% compared with the industry’s 10.8% growth in the past year.
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 43.1% versus the 55.1% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
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, backed by continued improvement in its consumer-centric digital solutions. The better-than-expected results for the fourth quarter buoy optimism on the stock. Yet, escalating costs and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 50.4% compared with the industry’s 31.8% rise and the S&P 500’s 13.3% growth.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $136.04 billion. The company projects 8.1% growth for the next five years. It surpassed estimates in the trailing four quarters, the average surprise being 11.91%.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Key Growth Catalysts
Impressive Q4 Results: CVS Health’s fourth-quarter 2021 earnings and revenues surpassed the Zacks Consensus Estimate. Revenues across all the three operating segments improved in the reported quarter. The company administered more than 8 million COVID-19 tests and more than 20 million COVID-19 vaccines nationwide in the fourth quarter of 2021. During the reported quarter, the company unveiled several steps to accelerate its omnichannel health strategy, including creating new store formats and optimizing its retail footprint to align with evolving customer needs.
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 fourth-quarter update, CVS.com is one of the top health websites with more than 2 billion visits in 2021, up nearly 55% over the prior year. The company now serves 40 million customers digitally, up approximately 10% in the last six months.
Pharmacy Services Business Gaining Traction: In the fourth quarter, CVS Health delivered better-than-expected results, banking on strong momentum in specialty pharmacy. During the fourth quarter, pharmacy revenues increased 7.8% year over year, driven by higher pharmacy claims volume, growth in specialty pharmacy and brand inflation. Total pharmacy membership increased by 40,000 sequentially, primarily reflecting growth in government programs. Total pharmacy claims processed grew nearly 8.2% more than the prior-year quarter. The company maintained an impressive 98% retention rate by the end of the fourth quarter.
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Escalating Costs: During fourth-quarter 2021, total cost (including Benefit Cost) rose 9.3%. Gross margin contracted 63 basis points (bps) to 17.8%. Operating costs in the quarter rose 6.7% year over year. The rise in operating costs and gross margin contraction are building pressure on the bottom line.
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. Meanwhile, 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 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.4% north to $8.26.
The Zacks Consensus Estimate for its first-quarter 2022 revenues is pegged at $75.17 billion, suggesting 8.8% growth from the year-ago reported number.
Key Picks
Few better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted EPS of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 58.3% compared with the industry’s 10.8% growth in the past year.
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 43.1% versus the 55.1% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.