CVS Health

  • CVS   is a diversified healthcare provider comprised of healthcare-beauty products,   pharmacy services, as well as healthcare benefits through its branch network   in excess of 9900 stores across 49 states in the United States.

  • The Covid-19 pandemic proved the efficacy of the   company’s business model, thereby enabling it to deliver 7.8m vaccinations,   both onsite and into nursing homes and other care facilities. This was   accomplished by using its large footprint which covers 75% of the US   population, which live within five minutes of its stores. The recent results   indicate that customers standing in line for vaccines bought merchandise on   display boosting sales.

  • The vaccine rollout elevated the importance of CVS as a   healthcare provider, especially with the advent of their Minute clinics,   which provide integrated health coverage to over 23m of its members. The   healthcare sector constitutes 19% of US GDP, where medical inflation is a   major challenge. A change in the operating model such as experienced   personnel at clinics and telemedicine should be positive for future growth   prospects.

  • All three divisions of CVS were positive for revenue   growth, with Pharmacy Services increasing by 3.8%, Health Care revenue growth   up by 6.7%, and Retail, the laggard, up by 2.3%. This could be interpreted to   customers staying at home during the pandemic, with lower front store sales.

  • This resulted in group revenue of $69.1 billion, up by   3.5% Y-o-Y, beating analysts’ expectations of $68.3 billion. Non-GAAP EPS   grew 6.8% over the prior year to $2.04, beating the forecasts EPS of $1.72.

  • Management guidance for adjusted EPS has been raised from   $7.39 - $7.55 to $7.56 - $7.68, reflecting solid prospects and a diversified   business for the year ahead, despite an elevated level of debt. The increase   in debt is as a result of the Athena Healthcare Benefits acquisition, which   is proving to be earnings accretive.

  • However FCF of around $9 billion in 2021, (as indicated   by the company’s guidance) with the bulk of the debt maturing in 2030, and   $8.8 billion in cash and cash equivalents, should enable the company, to   accelerate debt repayments, and thereby could result in a rerating from its   current low PE rating of 14x, by year end.

  • The current dividend yield of 2.5% is also attractive.   CVS appears to be turning the corner, after years of underperformance, with   substantial analyst coverage and a consensus outlook. The company has become   much more relevant in the new healthcare arena, as a result of innovation and   good execution of corporate activities.

  • Analysts have estimated that and walgreens will generate   an additional $1 billion of gross profit over a twelve month period.   Walgreens management has confirmed that dispensing the covid drug at a cost   of between $9 to $12, commands a gross profit margin of 90%.

  • The CVS Health share price has begun to reflect the turnaround prospects with the fifty two weeks low of $55.36 to the current level of $84.27. Anlysts forecast a conservative target by year-end of $92.40, based on increasing revenue growth and margin enhancement from the Healthcare segment.

CVS Health