On May 28, 2015, we issued an updated research report on CVS Health Corp. CVS – a pharmacy retail giant based in Rhode Island, with integrated offerings across the entire spectrum of pharmacy care.
CVS Health posted solid results in the first quarter of 2015 with earnings and revenues exceeding the respective Zacks Consensus Estimate by decent margins. The company’s exit from the tobacco business positively impacted Retail Pharmacy business sales during the quarter.
Despite facing tough pricing competition, CVS Health continues to gain substantially from its 2015 selling season reflecting high levels of service and execution, competitive pricing and a unique integrated model that allows the company to provide differentiated products and services that generate savings, better health outcomes and convenience. CVS Health believes 2015 will be the largest and most complex welcome season in the company’s history with around 150 new clients serving millions of new members.
Meanwhile, the soaring demand for specialty pharmacy, especially in the ongoing decade, is likely to accelerate growth for the company. In an attempt to further bolster its footprint in the growing specialty pharmacy care market, CVS Health has signed a deal to take over Ohio-based pharmacy services provider – Omnicare , for $12.7 billion.
CVS Health expects this deal to add 20 cents to its adjusted EPS for full year 2016. The benefit is projected to increase further in the years ahead.
Moreover, we are optimistic about domestic demographic trends, which are expected to drive utilization rates further as the population ages. This will facilitate retail pharmacy operators like CVS Health to grow and capture increased market share in the days ahead.
On the flip side, rising pressure to reduce reimbursement rates for generic drugs, along with a highly competitive market, provides stiff challenges to CVS Health. Also, the sluggish economic conditions in the U.S. might hamper the company’s profit margin.
Currently, the Zacks Consensus Estimate of EPS for 2015 and 2016 stand at $5.16 and $5.91 per share, respectively.
The stock has a Zacks Rank #3 (Hold).
Key Picks from the Sector
Medical stocks such as Actelion Ltd. ALIOF, Gilead Sciences Inc. GILD and Illumina Inc. ILMN are worth a look. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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