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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, backed by continued progress in its consumer-centric digital solutions. The company’s pharmacy service is gaining traction, which is impressive. Yet, escalating costs and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 34.7% compared with the industry’s 13.5% rise and the S&P 500’s 11.9% growth.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $132.75 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
COVID-19 Crisis Drives Digital Growth: CVS Health’s specialty digital solutions for patients saw a 25% CAGR over the past two years. 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.
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Balance Sheet View Strong: CVS Health ended 2021 with cash and cash equivalents of $9.4 billion compared with $7.9 billion at the end of 2020. Meanwhile, total debt came up to $56.18 billion, declining from $64.65 billion at the end of 2020. Although the year-end total debt was much higher than the corresponding cash and cash equivalent level, the near-term payable debt is at $4.2 million, lower than the short-term cash level. 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.
Downsides
Mounting Expenses: 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 company’s 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. 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
Some 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 57.7% compared with the industry’s 9.6% growth in the past year.
AMN Healthcare, flaunting 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 in the past year. AMN has gained 40.5% versus the 53.9% 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% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.
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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, backed by continued progress in its consumer-centric digital solutions. The company’s pharmacy service is gaining traction, which is impressive. Yet, escalating costs and stiff competition remain concerns.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 34.7% compared with the industry’s 13.5% rise and the S&P 500’s 11.9% growth.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $132.75 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
COVID-19 Crisis Drives Digital Growth: CVS Health’s specialty digital solutions for patients saw a 25% CAGR over the past two years. 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.
Balance Sheet View Strong: CVS Health ended 2021 with cash and cash equivalents of $9.4 billion compared with $7.9 billion at the end of 2020. Meanwhile, total debt came up to $56.18 billion, declining from $64.65 billion at the end of 2020. Although the year-end total debt was much higher than the corresponding cash and cash equivalent level, the near-term payable debt is at $4.2 million, lower than the short-term cash level. 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.
Downsides
Mounting Expenses: 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 company’s 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. 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
Some 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 earnings per share (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 57.7% compared with the industry’s 9.6% growth in the past year.
AMN Healthcare, flaunting 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 in the past year. AMN has gained 40.5% versus the 53.9% 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% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.