CVS Health Corporation (CVS) is a healthcare service provider in the United States, operating through three segments – Pharmacy Services, Retail/LTC, and Health Care Benefits. As the novel coronavirus continues to spread across the United States, CVS has rolled out thousands of COVID-19 test sites and launched a new business-to-business testing program for corporations and colleges. The company also provided home delivery of OTC and prescription drugs during the social distancing restrictions through CVS Pharmacy.
Last week Amazon launched its new pharmacy business, which will compete with CVS in selling prescription drugs. As a result, CVS’s stock plunged, but since then has recouped some of its losses.
To compete with Amazon, the company will need to continue to concentrate on digitizing its operations. The company’s positive returns over the past six months combined with several other factors have helped it earn a “Buy” rating in our proprietary rating system.
Here’s how our proprietary POWR Ratings system evaluates CVS:
Trade Grade: A
CVS is currently trading above its 50-day and 200-day moving averages of $60.72 and $62.46, respectively, indicating that the stock is in an uptrend. The stock gained 4.2%, over the past three months, reflecting short-term bullishness.
CVS’s revenue increased 3.5% year-to-date to $67.06 billion in the third quarter ended September 2020. Operating income grew 11% from the year-ago value to $3.62 billion, while the pharmacy segment’s gross profit rose 10.7% to $1.90 billion in the third quarter.
CVS recently announced the expansion of its COVID-19 testing services. It plans to add nearly 1000 testing sites by the end of this year. Since March, the company has undertaken more than 5 million coronavirus tests.
The retail division of CVS recently launched QuickRenew, an at-home contact lens prescription renewal tool, that allows users to renew their prescriptions online.
Buy & Hold Grade: B
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, CVS is well-positioned. The stock is currently trading just 13.3% below its 52-week high of $77.03.
The company’s net revenue grew at a CAGR of 13.3% over the past three years, while net income increased at a CAGR of 16.4% over this period. Also, EPS increased at a CAGR of 7.6% over the past three years.
This can be attributed to the company’s long-term strategic plan of transforming health care and innovative solutions in tandem with the evolving economy to meet customer needs.
Peer Grade: B
CVS is currently ranked #1 out of 4 stocks in the Medical – Drug Stores group. Other popular stocks in this industry are Walgreens Boots Alliance, Inc. (WBA), Rite Aid Corporation (RAD), and Trxade Group, Inc. (MEDS).
WBA, RAD, and MEDS declined 4.1%, 12.1% and 11.7%, respectively, over the past six months. This compares to CVS’s 5.4% return over this period.
Industry Rank: B
The Medical – Drug Stores industry is ranked #34 out of the 123 StockNews.com industries. The companies in this industry sell health products, prescription drugs, general merchandise from physical retail locations and over-the-counter medications.
The pandemic has revealed the limitations of the global healthcare system, and is inducing governments to take immediate action to transform the same. Initially, the industry experienced restrained growth as lockdowns disrupted the global supply chain and logistics. However, the market for medical supplies is expected to grow due to the increased requirement of PPE kits & N95 masks globally, the rising demand for ventilators, and the increasing need for diagnostic supplies. Also, CVS plans to roll out Covid-19 vaccines globally when those are ready to hit the market.
Overall POWR Rating: B (Buy)
CVS is rated “Buy” due to its impressive financials, short-and-long-term bullishness, and underlying industry strength, as determined by the four components of our overall POWR Rating.
Healthcare demand is expected to grow due to the ongoing coronavirus pandemic and CVS can still thrive, even with the launch of Amazon Pharmacy.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for CVS. It has an average broker rating of 1.31, indicating favorable analyst sentiment. Out of 25 Wall Street analysts that rated the stock, 19 rates it a “Strong Buy”. The consensus EPS estimate of $0.43 for the current year indicates a 4.9% improvement year-over-year. CVS has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $267.88 billion for the current year indicates a 4.3% increase from the same period last year.
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CVS shares were trading at $68.38 per share on Tuesday afternoon, up to $1.60 (+2.40%). Year-to-date, CVS has declined -5.03%, versus a 14.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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