CVS Health Corp. is a leading healthcare innovation company. It is the largest integrated pharmacy health care provider in the U.S. The company provides integrated offerings across the entire spectrum of pharmacy care. CVS Health operates through 10,000 retail locations in 49 states, the District of Columbia and Puerto Rico.
The company has a network of 25 retail specialty pharmacies, more than 68,000 retail network pharmacies and 75 major health system affiliations. CVS serves about 4.5 million customers through CVS Pharmacy stores daily and 5 million customers through Omnicare annually. With its recent acquisition of Aetna, CVS Health has become one of the nation’s premier health benefits companies. The company now has four reportable segments: Pharmacy Services accounting for nearly 60% of 2018 revenues (provides a full range of pharmacy benefit management solutions), Retail/LTC (37% – sells prescription drugs and a wide assortment of general merchandise), Health Care Benefits (2.5% – a leading diversified health care benefits provider) and Corporate/Other.
CVS Caremark has made the company the nation’s largest pharmacy benefits manager. It is also the leader in retail clinics, specialty pharmacy, and infusion.Investment Data
- Opportunity Score: 68
- Ticker: NYSE:CVS
- Sector: Healthcare
- Industry: Health Care Plans
- Market Cap: 97.98B
- P/E: 22.32
- Dividend Yield: 2.66
- Dividend Payout Ratio: 59.35
- Chowder Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
CVS Corp’s businesses offer a unique and powerful platform that will help reshape consumer experience. CVS is focusing on reducing the pace of the rise in medical costs which should translate into additional underwriting margin for its health plan. The company’s acquisition of Aetna and integrated asset platform aims at reducing patients’ avoidable spends on chronic conditions in the U.S. CVS is targeting five common chronic conditions for this purpose: diabetes, cardiovascular disease, hypertension, asthma, and behavioral health. It runs numerous programs to help patients manage their chronic conditions effectively and economically.
CVS caters to the needs of a wide range of clients including employers, insurance companies, unions, and government employee groups. It provides an integrated offering across the entire spectrum of pharmacy care. The company’s integrated model and extensive industry experience have enabled it to understand the diverse needs of its clients.
The acquisition of Aetna is about to create multiple opportunities for medical cost savings and long-term growth for CVS. The company is expecting more than $750 million of combined company synergies by the end of 2020. The company is also expanding its Medicare Advantage business by adding new members in existing and new markets.
CVS’ new digital tools and analytical capabilities actively support consumer engagement in their health. The company’s launch of same-day delivery in six cities and CVS app have made it easier for CVS customers to receive their prescriptions in time. As a result, client retention rate is also high at 98%. CVS Health is well-positioned to tackle the growing challenges in the healthcare industry and grant better customer experiences.
CVS Health has paid cash dividends every quarter since becoming a public company. It has paid uninterrupted dividends for 20 years in a row and has increased them for 14 long years through 2017. CVS Health is a Dividend Achiever. The company had announced in late 2017 that, due to the Aetna acquisition, it would suspend any dividend increases as well as its share repurchase program. In the near term, the company plans to use its free cash flow to fund dividends and pay down its debt.
CVS returned $2 billion of cash to its shareholders in the last year. The company sports a high dividend yield of 3.2% and a payout ratio of 56%. It last raised its dividend by more than 17%. CVS has a solid track record of dividend growth. The company has grown its dividend at a rate of 22% CAGR over the last decade.
CVS Health has a solid history of successfully acquiring and integrating companies. Its acquisition of Caremark RX back in 2006 made it the second biggest PBM. Most recently, its Aetna acquisition positions it well to become one of the largest vertically integrated healthcare companies. CVS believes that it is on track to exceed its 2020 target for synergies from the Aetna Acquisition. The company should be able to keep growing its cash flow driven by cost synergies and pay off its debt using retained free cash flow in the future.
CVS competes with leading healthcare companies like Walgreens Boots Alliance, UnitedHealth, Genentech, Gilead Sciences, Novartis, Avella Specialty, Merck, etc. The company enjoys leading market share positions in all of its core businesses.
|Ticker||Company||Sector||Industry||Score||Quote||Market Cap||PE||FPE||EPS||Yield||Payout Ratio||Payments||Dividend||Chowder||Ambassador||Achiever||Aristocrat||King||Graph|
|UNH||UnitedHealth Group Incorporated||Healthcare||Health Care Plans||56||276.84||262.28||20.14||28.31||13.75||1.56||31.42||4||4.32||24.10||NO||NO||NO||NO||1|
|CVS||CVS Health Corporation||Healthcare||Health Care Plans||68||75.31||97.98||22.32||28.31||3.37||2.66||59.35||4||2.00||15.28||NO||YES||NO||NO||1|
|ANTM||Anthem Inc.||Healthcare||Health Care Plans||43||291.83||74.00||17.75||28.31||16.44||1.10||19.46||4||3.20||7.36||NO||NO||NO||NO||1|
Healthcare business is relatively immune from fluctuations in the economic cycle and CVS’ integrated platform and leading market shares position it well to gain from growing healthcare industry. Through its innovative solutions, CVS engages in providing increased access to quality care and reduce overall healthcare costs. The company should therefore continue its dividend payment streak in the future and also resume its dividend growth once the deleveraging efforts are complete.
I imagined pharmacies as strong businesses with a near monopoly with access to medicine. However, the laws around medical healthcare in the US is often under review and it triggers wild swings in the stocks. I am staying away from this industry.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.