Categories Analysis, Health Care

CVS Health gets a shot in the arm from COVID care: Is the stock a buy?

While all the three business segments registered growth in the first quarter, comparable sales slumped reflecting the weak store traffic

After being hit by the virus-induced slowdown in store footfall initially, CVS Health Corporation (NYSE: CVS) has regained the lost momentum by expanding patient care programs including COVID test and vaccination. Taking a cue from the emerging trends in the healthcare sector, the company is planning to broaden its services beyond prescription filling.

Investing in CVS

After a period of volatility, shares of the Rhode Island-based retail pharmacy chain have entered the recovery path. The market would be curious to know if there is more room for growth, after the recent rally. The answer is yes – the target price shows the stock can grow up to 11% in the next twelve months. It has been popular among both institutional investors and individuals. Moreover, the nature of CVS’s business is such that it would not stay in recession for long. According to analysts following the company, the time is ripe to invest.


Read management/analysts’ comments on CVS’s Q1 earnings


Aetna, the healthcare insurance arm that joined the CVS Health fold a few years ago, has helped the company shrug off the recent slowdown, in an industry that is highly competitive. Also, the aggressive expansion of the HealthHUB network across the country, with a focus on patients with chronic diseases, gives CVS an edge over its peers in terms of long-term growth.

CVS Health Q1 2021 earnings infographic

Challenges

Like most drug retailers, CVS Health faces continued threats from the digital space, mainly from Amazon (NASDAQ: AMZN) which earlier expanded its pharmacy footprint through the PillPack acquisition. Besides that, pharmacy chains, in general, are under pressure from regulators to reduce prices.

Despite the shutdown, the company generated stronger-than-expect net profit throughout last year. In the March quarter, earnings rose 7% annually to $2.04 per share on revenues of $69 billion, which is up 3% year-over-year and above Wall Street’s projection. While all the three business segments grew, comparable sales slumped reflecting the weak store traffic.


Will restructuring, cost-cutting help Walgreens beat COVID blues?


“There are three areas where I want to specifically highlight some of our achievements in the last quarter. They include: using our digital assets to expand engagement with our members; expanding into new services and offerings; and leveraging digital capabilities to enhance the customer experience and improve our cost structure. Starting with engagement, we saw more than 80% increase in visits to our flagship digital properties year-over-year,” said Karen Lynch, chief executive officer of CVS Health, during his post-earnings interaction with analysts.

At the Bourses

Shares of CVS Health grew about 18% so far in 2021 and are trading at a four-year high that is well above their 52-week average. Extending the post-earnings rally, the stock closed Wednesday’s regular session higher and continued to outperform the market.

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