Retail pharmacy chain CVS Health Corporation (NYSE: CVS) has been diversifying with the aim of tapping into emerging opportunities, while also aligning the business with the changing healthcare market. With the management’s recent expansion initiatives, the company seems to be on its way to becoming a healthcare behemoth.
After retreating from its peak more than a year ago, CVS’ stock has become more affordable. Considering the low risk and cheap valuation, it is a good investment option right now. CVS offers an impressive dividend yield of 3.1%, which is above average, and the company has been raising dividend regularly. Experts, in general, are optimistic about the stock’s future prospects, forecasting around 50% growth in the next twelve months.
The M&A Route
The Woonsocket, Rhode Island-based healthcare company’s aggressive expansion into primary care would be a key growth driver going forward. Last week, it completed the acquisition of Signify Health, Inc. in what could be a major step towards taking the care business to the next level. Since others like arch-rival Walgreens Boots Alliance, Inc. (NASDAQ: WBA) are also ramping up their primary care capabilities, CVS is likely to face competition in that area.
Earlier this year, CVS signed an agreement to acquire Oak Street Health, another leading primary care provider, in a $10.6-billion deal. These initiatives speak volumes about the company’s high interest in the primary care space. At the same time, the pharmacy benefits manager business, which got a major boost after the Aetna acquisition a few years ago, keeps increasing its revenue share.
CVS has constantly strengthened its balance sheet, with cash flows growing steadily over the past decade enabling the company to take forward the dividend program and to repay a part of its debt. The positive trend is likely to extend into the current fiscal year, thereby lifting shareholder value.
A Fruitful Year
In the fourth quarter of 2022, total revenues increased 10% annually to $83.8 billion. Adjusted earnings edged up to $1.99 per share. Same-store sales grew at an accelerated pace of 17.7%, reflecting strong performance by the Pharmacy segment. Both revenues and earnings topped expectations. Interestingly, quarterly earnings didn’t miss the estimates not even once in the past six years. Looking ahead, the management forecasts strong fiscal 2023 profit that is higher than in the prior year, on a per-share basis.
Commenting on the management’s growth initiatives, CVS’ CEO Karen Lynch said during a recent interaction with analysts, “We are making significant progress advancing our strategy, which includes expanding our care delivery and health services capabilities in primary care, home health, and provider enablement. Last year we announced the pending acquisition of Signify Health, which represented an important step forward in our value-based care strategy. Signify will strengthen our presence in the home and enhance our provider enablement capabilities. We now project that this transaction will close in the second quarter of 2023.”
The stock has probably ended a prolonged downturn and is currently on the recovery path. Extending last week’s strong gains, CVS traded higher on Wednesday afternoon but stayed below its long-term average.