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CVS Health (CVS): Strong Q1, Mega Buyouts Offer Hope
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On Jun 7, 2016, we issued an updated research report on Rhode Island-based pharmacy retail giant CVS Health Corp. (CVS - Free Report) , which provides integrated offerings across the entire spectrum of pharmacy care.
CVS Health posted better-than-expected first-quarter 2016 results, with both adjusted EPS and revenues exceeding the Zacks Consensus Estimate. The Pharmacy Services segment benefited from growth in the Specialty Pharmacy business while the Retail Pharmacy segment gained from increased same-store sales.
The $12.7 billion mega acquisition of Omnicare reflects CVS Health’s foray into the fast growing long-term specialty care market. CVS Health currently expects Omnicare to be accretive by approximately 20 cents to its 2016 EPS (excluding any transaction and integration costs).
We are also positive on the company’s $1.9 billion acquisition of the pharmacy and clinic businesses of retail giant, Target Corporation. This strategic inclusion reflects a bold move on CVS Health’s part to enhance its presence across the country by expanding into new markets such as Seattle, Denver, Portland and Salt Lake City. The acquisition should expand CVS Health's customer base, add a new retail channel for its products and augment customer convenience. Post the closure of the deal, the company now has control over Target’s 1,672 pharmacies across 47 states. CVS Health has started to operate these through a store-within-a-store format, branded as CVS/pharmacy.
With regard to CVS Health’s 2016 PBM selling season, management noted that it has completed the 16th selling season with a retention rate of 97.3%. Currently, the company’s gross new business remains at $15.2 billion with net new business of $13.1 billion, both up about $400 million from the last updated number. This reflects incremental growth from the company’s new health plan clients as they closed out their enrollment year.
Meanwhile, according to recent data, 3 million people in the U.S. are currently in need of specialty treatment and the potential cost for this tends to be very high. With management emphasizing that CVS Health's specialty business remains a top priority for customers, we believe it is well positioned to capitalize on this opportunity based on its broad, differentiated offerings including the likes of Specialty Connect.
On the flip side, rising pressure from health maintenance organizations, managed care organizations, PBM companies, government entities and other third party payers to reduce prescription drug costs and pharmacy reimbursement rates, is expected to impact CVS Health's profitability.
Further, in the highly competitive retail pharmacy business, shareholders of CVS Health anticipate severe competitive threat from the $17.2 billion mega merger between Walgreens and Rite Aid, once the deal closes. Also, the sluggish economic conditions in the U.S. might hamper the company's profit margin.
The stock currently has a Zacks Rank #3 (Hold).
Key Picks in the Sector
Some better-ranked medical stocks are Herbalife Ltd. (HLF - Free Report) , Boston Scientific Corporation (BSX - Free Report) and Baxter International Inc. (BAX - Free Report) , all with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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CVS Health (CVS): Strong Q1, Mega Buyouts Offer Hope
On Jun 7, 2016, we issued an updated research report on Rhode Island-based pharmacy retail giant CVS Health Corp. (CVS - Free Report) , which provides integrated offerings across the entire spectrum of pharmacy care.
CVS Health posted better-than-expected first-quarter 2016 results, with both adjusted EPS and revenues exceeding the Zacks Consensus Estimate. The Pharmacy Services segment benefited from growth in the Specialty Pharmacy business while the Retail Pharmacy segment gained from increased same-store sales.
The $12.7 billion mega acquisition of Omnicare reflects CVS Health’s foray into the fast growing long-term specialty care market. CVS Health currently expects Omnicare to be accretive by approximately 20 cents to its 2016 EPS (excluding any transaction and integration costs).
We are also positive on the company’s $1.9 billion acquisition of the pharmacy and clinic businesses of retail giant, Target Corporation. This strategic inclusion reflects a bold move on CVS Health’s part to enhance its presence across the country by expanding into new markets such as Seattle, Denver, Portland and Salt Lake City. The acquisition should expand CVS Health's customer base, add a new retail channel for its products and augment customer convenience. Post the closure of the deal, the company now has control over Target’s 1,672 pharmacies across 47 states. CVS Health has started to operate these through a store-within-a-store format, branded as CVS/pharmacy.
With regard to CVS Health’s 2016 PBM selling season, management noted that it has completed the 16th selling season with a retention rate of 97.3%. Currently, the company’s gross new business remains at $15.2 billion with net new business of $13.1 billion, both up about $400 million from the last updated number. This reflects incremental growth from the company’s new health plan clients as they closed out their enrollment year.
Meanwhile, according to recent data, 3 million people in the U.S. are currently in need of specialty treatment and the potential cost for this tends to be very high. With management emphasizing that CVS Health's specialty business remains a top priority for customers, we believe it is well positioned to capitalize on this opportunity based on its broad, differentiated offerings including the likes of Specialty Connect.
On the flip side, rising pressure from health maintenance organizations, managed care organizations, PBM companies, government entities and other third party payers to reduce prescription drug costs and pharmacy reimbursement rates, is expected to impact CVS Health's profitability.
Further, in the highly competitive retail pharmacy business, shareholders of CVS Health anticipate severe competitive threat from the $17.2 billion mega merger between Walgreens and Rite Aid, once the deal closes. Also, the sluggish economic conditions in the U.S. might hamper the company's profit margin.
The stock currently has a Zacks Rank #3 (Hold).
Key Picks in the Sector
Some better-ranked medical stocks are Herbalife Ltd. (HLF - Free Report) , Boston Scientific Corporation (BSX - Free Report) and Baxter International Inc. (BAX - Free Report) , all with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>