Yahoo Finance Here's Why You Should Retain CVS Health (CVS) Stock for Now
CVS Health Corporation CVS is well poised for continued improvement in its consumer-centric digital solutions. Moreover, better-than-expected results in the third quarter of 2021 and bullish full-year outlook buoy optimism. Yet, poor macroeconomic conditions and stiff competition remain concerns.
Over the past six months, the Zacks Rank #3 (Hold) stock has gained 5.3% against the industry’s 2% fall and the S&P 500’s 7.5% rise.
The pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care has a market capitalization of $119.95 billion. The company projects 6.7% growth for the next five years. It surpassed estimates in the trailing four quarters, the average surprise being 12.60%.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Key Growth Drivers
Impressive Q3 Results: CVS Health’s third-quarter earnings and revenues surpassed the Zacks Consensus Estimate. Revenues across all the three operating segments improved in the quarter. The company noted that the consumer-centric digital strategy has become more relevant in the current environment as people use technology more while staying indoors. The company also witnessed strong demand for integrated solutions across the healthcare continuum, including health management programs for chronic conditions, mental health support, pharmacy services, and health and wellness products in the reported quarter.
COVID-19 Crisis Drives Digital Growth: CVS Health’s specialty digital solutions for patients saw a 25% CAGR over the past two years, and since the start of the pandemic, the company has been seeing a significant part of its specialty orders being placed digitally. During the third-quarter earnings update, CVS Health noted that it is strengthening consumer experience by expanding digital services and platforms that connect to health services and in-person channels. The company also expanded digital capabilities to provide universal access to CVS Health vaccination records to the millions of adults that have been vaccinated. This new capability has driven more than 1 million visits per month to the vaccination records on cvs.com.
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Raised Guidance: CVS Health raised its 2021 adjusted earnings per share (EPS) guidance. Adjusted earnings per share are expected in the band of $7.90-$8.00 (compared with the earlier range of $7.70-$7.80). Full-year operating cash flow projection has been raised to the range of $13.00-$13.50 billion (from the previous range of $12.50-$13.00 billion).
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Poor Macroeconomic Condition: Although prescriptions and related health care service providers like CVS stay out of general macro-economic turmoil, the recent debt crisis and sluggish economic conditions in the United States impact consumer purchasing power. This may also influence preferences and spending patterns and result in low prescription utilization.
Competitive Landscape: Despite significant new client wins in the course of a strong selling season, intense competition and tough industry conditions act as major impediments. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses.
Estimate Trends
CVS Health is witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 1.7% north to $7.95.
The Zacks Consensus Estimate for its fourth-quarter 2021 revenues is pegged at $73.95 billion, suggesting 6.3% growth from the year-ago reported number.
Key Picks
A few better-ranked stocks from the broader medical space are Chemed Corporation CHE, Laboratory Corporation of America Holdings, or LabCorp LH and Medpace Holdings, Inc. MEDP, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chemed has a long-term earnings growth rate of 7.7%. The company surpassed EPS estimates in three of the trailing four quarters and missed in one, delivering a surprise of 5.6%, on average.
Chemed has outperformed its industry over the past year. CHE has declined 0.8% compared with the industry’s 44.1% decline.
LabCorp reported third-quarter 2021 adjusted EPS of $6.82, which surpassed the Zacks Consensus Estimate by 42.9%. Revenues of $4.06 billion outpaced the Zacks Consensus Estimate by 13.4%.
LabCorp has an estimated long-term growth rate of 10.6%. LH surpassed estimates in the trailing four quarters, the average surprise being 25.7%.
Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.
Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.
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