CVS Health Corporation (CVS - Free Report) has been gaining investors’ confidence on consistently upbeat results. Over the past three months, the company’s share price has outperformed its industry. The stock has gained 23.2%, compared with the industry’s 15.9% rise and the S&P 500’s gain of 10.7%.
This pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market cap of $80.94 billion. The company’s projected earnings growth rate for the current year is 19.5% in contrast to the industry’s 2.5% decline.
With solid prospects, this Zacks Rank #2 (Buy) stock is an attractive pick for investors at the moment.
The company’s earnings estimate revision trend for the current year has been positive. The earnings estimates have increased 0.14% to $7.05 per share over the past 30 days. Further, the Zacks Consensus Estimate for current-year revenues of $188.95 billion reflects an improvement of 2.3% year over year.
Per our Zacks Style Score system, CVS Health has a Growth Score of A, which reflects the company’s solid prospects. Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
Let’s find out whether the recent positive trend is a sustainable one.
PBM Business Gaining Traction
With regard to its 2019 PBM selling season, CVS Health has noted that it has completed more than 70% of its client renewals, almost in line with the previous year. The retention rate is currently higher than the rates it has seen over the last few years.
Despite lesser RFP opportunities, current gross wins stand at an impressive level of $1.8 billion with net new business of approximately $200 million.
Favorable Industry Dynamics
The retail pharmacy operators like CVS Health should be able to grow and capture market share on favorable domestic demographic trends. The increasing number of lives covered following the healthcare reforms is likely to benefit CVS Health.
In fact, we believe that insurance coverage might be a crucial catalyst going forward. Additionally, the company’s mail order service is gaining popularity, which will help open up more top-line opportunities. In the last-reported quarter, CVS Health’s PBM generic dispensing rate (the proportion of all generic prescriptions to total number of prescriptions dispensed) soared 40 bps to 87.6%. Generic substitution for drugs is a significant factor in the reduction of prescription healthcare costs. Generic drug usage, as a percentage of total prescriptions, is increasing.
Strong Balance Sheet
CVS Health exited second-quarter 2018 with cash and cash equivalents and short-term investments of $43.9 billion compared with $42.1 billion at the end of the first quarter. Year to date, net cash provided by operating activities was $5.3 billion, compared with $5.5 billion a year ago. Accordingly, the company generated $4.4 billion of free cash in this period. This is in line with the company's free cash expectations for the year.
Other Key Picks
Other top-ranked stocks in the broader medical space are Intuitive Surgical (ISRG - Free Report) , Amedisys, Inc. (AMED - Free Report) and Masimo Corporation (MASI - Free Report) .
Intuitive Surgical’s long-term expected earnings growth rate is 14.7%. The stock currently carries a Zacks Rank of 2.
Amedisys’ long-term expected earnings growth rate is 19.4%. The stock holds a Zacks Rank #2 at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Masimo’s long-term expected earnings growth rate is 14.8%. The stock has a Zacks Rank #2 at present.
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