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Sunday, October 1, 2023

CVS: Long-Term Looks Healthy

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CVS Health (CVS) stock is trading at $80.05 per share, down 2% since the company released its latest quarterly report on Wednesday. Yet, the stock is still up about 17% year-to-date.

Let’s look at the quarterly numbers and see what’s going on.

Sales came in at $72.62 billion, up about 11% on a year-over-year basis. This beat Wall Street expectations of $70.24 billion.

The bottom line was also better-than-expected. CVS posted adjusted earnings per share of $2.42, exceeding the consensus prediction of $2.06 per share. The company also increased its fiscal 2021 adjusted earnings guidance, which is now set at $7.70 to $7.80 per share. The prior guidance was for $7.56 to $7.58 per share. (See CVS stock charts on TipRanks)

So, why did CVS shares drop on the earnings news? Well, the company also announced on Wednesday that it is raising its minimum wage to $15 an hour, effective July 2022. The predicted $200 million bump in labor costs will certainly put pressure on margins. Then again, many other retail operations have had little choice but to increase wages. What’s more, about two-thirds of CVS hourly employees already get paid at least $15 per hour.

Long-Term Positives

It’s important to keep in mind that the COVID-19 vaccine rollout continues to be a notable benefit for CVS. During Q2, the company administered close to 17 million injections and over 6 million COVID-19 tests. This has meant more foot traffic into CVS retail locations as well as contact information for the customer database. Note that the quarter saw same-store sales jump by an impressive 12.3%.  

There may be more use for vaccines and tests going forward as the Delta variant continues to spread across the United States.

Bottom Line on CVS Stock

CVS has built a powerful, integrated healthcare platform, which includes a massive retail footprint, a leading pharmacy benefit platform, and a major health insurance business. What’s more, the company has bolstered this with investments in digital systems. For example, there are over 35 million unique digital customers, and they spend 2.5 times more than front-store customers.  

CEO Karen Lynch stated on the earnings call, “Our technology-driven programs are leveraging blockchain, driving cloud migration, and intelligent automation, and streamlining processes to accelerate results and generate greater impact.”

“One example is a specialty pharmacy script automation program that uses AI to yield better results more quickly, while eliminating more than 30 manual steps, such as benefit verification and prior authorization,” she added.

Looking at the stock price, it appears to be at reasonable levels. Even before the earnings report, it was trending down (CVS had reached $89.27 on May 21). The result is that the price-to-earnings multiple is at an attractive 14.65 and the dividend yield is at 2.45%. So, for the most part, it seems like a good entry point for investors looking for a way to play the healthcare market. 

Wall Street’s Take

According to TipRanks’ analyst rating consensus, CVS stock comes in as a Strong Buy. Out of 14 analyst ratings, there are 11 Buy and 3 Hold recommendations. At $97.79, the average CVS price target implies 22% upside potential.

Disclosure: Tom Taulli has a position in CVS stock.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The post CVS: Long-Term Looks Healthy appeared first on TipRanks Financial Blog.

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