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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 its consistently strong sales momentum across all three operating segments. The acquisition of Oak Street Health advances its care delivery strategy for consumers, which is likely to boost future growth However, stiff competition and poor macroeconomic conditions are a concern.
In the past year, this Zacks Rank #3 (Hold) stock has declined 14.8% compared with the industry’s 19.2% fall and the S&P 500’s 27% rise.
The pharmacy innovation company, with integrated offerings across the entire spectrum of pharmacy care, has a market capitalization of $101.7 billion. The company has a long-term estimated earnings growth rate of 4.2%.
Let’s delve deeper.
Tailwinds
Restructuring Plan Looks Impressive: Earlier in 2023, CVS Health developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In conjunction with developing this plan and recently-completed acquisitions of Signify Health and Oak Street Health, the company conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives.
CVS Health announced a restructuring charge of nearly $500 million associated with the elimination of nearly 5,000 non-customer-facing positions and the impairment of non-core assets. These efforts are expected to generate more than $600 million of savings annually beginning in 2024.
Pharmacy & Consumer Wellness on a Growth Track: The company’s considerable expansion in the retail pharmacy has led to significant market share increases over time. This demonstrates the benefit the company offers to pharmacy patients and the investments made to enhance their experiences. In front store, CVS Health expanded its market share, increased household penetration and delivered historically high service levels. This positions the company well to manage through economic volatility.
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In terms of the latest update, during the third quarter, same-store pharmacy sales were up nearly 12%, driven by drug mix, a 2.7% increase in same-store prescription volumes and brand inflation. The increase in same-store prescription volumes, excluding the impact of COVID-19 vaccinations, was 3.5%.
Health Care Benefit Shows Potential: Following the colossal acquisition of health insurance giant Aetna, CVS Health introduced its Health Care Benefits business arm. This segment manages drug cost trends and brings innovative clinical solutions to the market. During third-quarter earnings update, the company stated that Aetna continues to be a leader in zero-dollar premium products. About 84% of Medicare eligibles will have access to Aetna plans in this category in 2024. The company is also expanding the breadth of its D-SNP footprint (offering the coordinated medical management that members need for a healthier life, including introducing them to care delivery options such as Oak Street Health, where appropriate) and covers more than two-thirds of Medicare eligibles, up 6% from last year’s levels.
Downsides
Competitive Landscape: Despite new client wins in the course of a strong selling season, intense competition and tough industry conditions act as major impediments for CVS Health. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses.
Poor Macroeconomic Condition: Adverse economic conditions in the United States and abroad are affecting CVS Health’s businesses, operating results and financial condition.
The challenging macroeconomic conditions are resulting in a significant escalation in costs and expenses. During the third quarter, the company’s total cost (including Benefit Costs) rose 8.6%.
Estimate Trends
In the past 90 days, the Zacks Consensus Estimate for fiscal 2023 earnings has been constant at $8.59 per share.
The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $354.2 billion, suggesting a 9.9% rise from the year-ago reported number.
Haemonetics’ shares have increased 11.6% in the past year. Earnings estimates for Haemonetics have increased from $3.82 to $3.86 in 2023 and $4.07 to $4.11 in 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it posted an earnings surprise of 5.3%.
Estimates for Insulet’s 2023 earnings per share have increased from $1.61 to $1.90 in the past 30 days.
PODD’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.4%.
Estimates for DexCom’s 2023 earnings per share have increased from $1.23 to $1.41 in the past 30 days.
DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%. In the last reported quarter, it delivered an average earnings surprise of 47.1%.
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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 its consistently strong sales momentum across all three operating segments. The acquisition of Oak Street Health advances its care delivery strategy for consumers, which is likely to boost future growth However, stiff competition and poor macroeconomic conditions are a concern.
In the past year, this Zacks Rank #3 (Hold) stock has declined 14.8% compared with the industry’s 19.2% fall and the S&P 500’s 27% rise.
The pharmacy innovation company, with integrated offerings across the entire spectrum of pharmacy care, has a market capitalization of $101.7 billion. The company has a long-term estimated earnings growth rate of 4.2%.
Let’s delve deeper.
Tailwinds
Restructuring Plan Looks Impressive: Earlier in 2023, CVS Health developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In conjunction with developing this plan and recently-completed acquisitions of Signify Health and Oak Street Health, the company conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives.
CVS Health announced a restructuring charge of nearly $500 million associated with the elimination of nearly 5,000 non-customer-facing positions and the impairment of non-core assets. These efforts are expected to generate more than $600 million of savings annually beginning in 2024.
Pharmacy & Consumer Wellness on a Growth Track: The company’s considerable expansion in the retail pharmacy has led to significant market share increases over time. This demonstrates the benefit the company offers to pharmacy patients and the investments made to enhance their experiences. In front store, CVS Health expanded its market share, increased household penetration and delivered historically high service levels. This positions the company well to manage through economic volatility.
In terms of the latest update, during the third quarter, same-store pharmacy sales were up nearly 12%, driven by drug mix, a 2.7% increase in same-store prescription volumes and brand inflation. The increase in same-store prescription volumes, excluding the impact of COVID-19 vaccinations, was 3.5%.
Health Care Benefit Shows Potential: Following the colossal acquisition of health insurance giant Aetna, CVS Health introduced its Health Care Benefits business arm. This segment manages drug cost trends and brings innovative clinical solutions to the market. During third-quarter earnings update, the company stated that Aetna continues to be a leader in zero-dollar premium products. About 84% of Medicare eligibles will have access to Aetna plans in this category in 2024. The company is also expanding the breadth of its D-SNP footprint (offering the coordinated medical management that members need for a healthier life, including introducing them to care delivery options such as Oak Street Health, where appropriate) and covers more than two-thirds of Medicare eligibles, up 6% from last year’s levels.
Downsides
Competitive Landscape: Despite new client wins in the course of a strong selling season, intense competition and tough industry conditions act as major impediments for CVS Health. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses.
Poor Macroeconomic Condition: Adverse economic conditions in the United States and abroad are affecting CVS Health’s businesses, operating results and financial condition.
The challenging macroeconomic conditions are resulting in a significant escalation in costs and expenses. During the third quarter, the company’s total cost (including Benefit Costs) rose 8.6%.
Estimate Trends
In the past 90 days, the Zacks Consensus Estimate for fiscal 2023 earnings has been constant at $8.59 per share.
The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $354.2 billion, suggesting a 9.9% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , Insulet (PODD - Free Report) and DexCom (DXCM - Free Report) . While Haemonetics and DexCom each carry a Zacks Rank #2 (Buy), Insulet sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Haemonetics’ shares have increased 11.6% in the past year. Earnings estimates for Haemonetics have increased from $3.82 to $3.86 in 2023 and $4.07 to $4.11 in 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it posted an earnings surprise of 5.3%.
Estimates for Insulet’s 2023 earnings per share have increased from $1.61 to $1.90 in the past 30 days.
PODD’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.4%.
Estimates for DexCom’s 2023 earnings per share have increased from $1.23 to $1.41 in the past 30 days.
DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%. In the last reported quarter, it delivered an average earnings surprise of 47.1%.