👨‍⚕️ Will CVS Keep Shareholders Healthy?

Disney earnings beat estimates.


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👨‍⚕️ CVS: Dodging Competition?

CVS Health (CVS) wants to own or partner with a primary-care company. The second-largest healthcare company in the US intends to have a deal by the end of the year. However, competition has marched significantly ahead within this space. Can it manage to play catch-up?

Expanding Avenues

CVS wants to become the leading health solutions company in the US. Along with the ~10K stores that it operates across the country, CVS also owns insurer Aetna and pharmacy benefits manager CVS Caremark. It also provides patient care through MinuteClinics inside its stores.

Over 37M Americans have kidney disease, costing Medicare $35B every year. Last week, the company launched clinical trials for its new home dialysis system. The foray into the home kidney care industry is intended to expand home dialysis as they can be more frequent and prolonged than in-center ones.

The company also introduced the CarePass program nationwide in 2019. The loyalty and membership program offers free one-or two-day shipping, discounts, and other perks for a monthly fee of $5 or $48 annually. CarePass membership increased 26% from last year in Q2.

Both trips to CVS and the average basket size of customers increased by mid-single digits in Q2. The increase benefitted the company’s earnings which beat analyst expectations.

Key Highlights From Q2: 

  • Revenue: $80.64B Vs $76.37B expected
  • Earnings Per Share: $2.40 Vs $2.17 expected
  • Net Profit: $2.95B Vs $2.78B Year-on-Year

CVS’ strategy of adding more health services, thereby deepening customer relationships aided growth. Visits to the MinuteClinic increased 12% during the quarter.

Same-store sales during the quarter increased 8%, defying expectations of a 0.3% drop. Customers bought more at-home Covid test kits and cough, cold & flu medications. Part of the 11% revenue growth also came from price hikes as the company passed most inflation-related costs to shoppers.

When questioned about further hikes, the management refused to provide more clarity but said that they want to ensure there is value for shoppers on the shelf at all times. On average, private labels at CVS are 20-40% cheaper than national brands, providing a budget-friendly option to customers.

Falling Behind Competition

CVS conducted 4M Covid tests and administered ~6M vaccines in Q2, down from the 6M tests and 8M vaccine shots in Q1. However, it raised its annual vaccine forecast to 20M, 75% of which has already been administered. It now expects Covid-related yearly revenue of $3B, indicating a 33% year-on-year drop, better than the earlier forecast of a two-thirds slump.

The company also expects to grow more than anticipated as they raised their annual guidance.

Updated Guidance For 2022:

  • Revenue Growth: 5-7% Vs 5-6% earlier
  • Operating Income: 0-2% Growth Vs 0-2% Drop
  • Adjusted EPS: 0-2% Growth Vs 0-2% Drop

Customers can get vaccines or urgent care at MinuteClinic outposts inside its stores. CVS has also introduced therapy for mental health at some of its stores. However, the company does not have doctor offices where patients can go for annual checkups or have appointments with physicians or nurses. It wants to change this by either buying or acquiring a stake in a primary-care company by the year-end.

A company with a strong management team, a tech background, and the ability to grow quickly is on CVS’ radar. As part of the plan, it is bidding for Signify Health Inc, which is exploring strategic alternatives, including a sale. In addition, CVS may face competition from other managed-care providers and PE firms who also plan on putting in their respective bids.

Signify uses analytics and technology to help health plans, employers, physician groups, and health systems with in-home care. It went public in February 2021 and currently trades below its IPO price of $24.

CVS’ competition has already made significant moves in the primary-care market. Walgreens is already opening hundreds of doctor offices in partnership with VillageMD. Walmart also has a small but growing number of clinics where people can visit a doctor, dentist, or therapist at lower prices. Amazon has also entered the fray with a $3.9B acquisition of One Medical, which gives it access to 188 medical offices across 25 markets. CVS was also the mystery bidder for One Medical before Amazon swooped in.

The management, though, is unfazed with competition and their moves. CEO Karen Lynch believes CVS has a competitive edge simply due to the size of its business. Lynch explained this on the analyst call stating that 4.8M customers interact with the company daily at its locations.

CVS will need to look for other growth areas as the Covid business tapers off. The stock is flat this year compared to an overall fall in the broader market. The company will have to quickly find ways of dodging competition, which is running away with the first-mover advantage if it intends to keep its shareholders in the pink of health!

Market Reaction
CVS ended at $104.05, up 0.35%.

Company Snapshot 📈

CVS 104.05 +0.36 (0.35%)

Analyst Ratings (26 Analysts) BUY 69%  HOLD 31%  SELL 0%


Newsworthy 📰

Catching Up: Disney streaming subscriber growth blows past estimates as the company beats on top and bottomline (DIS +7.84%) (Premarket)

Swiping Left: Bumble cuts annual revenue forecast as Ukraine war, competition bite (BMBL -7.36%) (Premarket)

Raising Cash: SoftBank to reduce Alibaba stake, expects $34B in gains (BABA +1.17%) (Premarket)


Later Today 🕒

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  • Cardinal Health Inc. Earnings (CAH)
  • Rivian Automotive Inc. Earnings (RIVN)
  • Illumina Inc. Earnings (ILMN)
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  • 6:00 PM IST: Initial Jobless Claims
  • 6:00 PM IST: Producer Price Index

Today’s Fun Fact

Through its UnitedHealthcare and Optum arms, UnitedHealth Group provides medical benefits to people in all 50 U.S. states and more than 150 other countries


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