Introduction
CVS Health Corporation (NYSE:CVS) is fresh off reporting earnings for FYQ2 with beats on both the top and bottom line. EPS came in at $1.33 with revenue coming in at $45.69 billion, beating by $0.02 and $320 million, respectively. Since reporting earnings, the stock hasn’t moved as much of the pessimistic narrative was priced into the stock. Since its high of $112 in 2015, a slew of issues negatively impacting its growth and marketplace have plagued the stock. Firstly, the political backdrop was a significant headwind for the entire pharmaceutical supply chain from drug manufacturers to pharmacies/pharmacy benefit managers (i.e., CVS and Walgreens (WBA)) and the drug wholesalers in-between (i.e., McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC)). Secondly, marketplace trends forced CVS to cut guidance for Q4 2016 and the full-year 2017 numbers. CVS stated that “unexpected marketplace actions that will have a negative impact on our Q4 2016 results and a more meaningful impact on our outlook for 2017”. Thirdly, CVS lost a contract with the Department of Defense which carries tens of millions of prescriptions on an annual basis. A new restricted network relationship between Prime Therapeutics and Walgreens impacts CVS Pharmacy’s participation in selected fully-insured networks in several key states, and many cases make CVS Pharmacy a nonpreferred provider for Medicare Part D as well. These prescriptions tend to be the most profitable prescriptions as well. Lastly, Amazon’s purchase of Whole Foods and behind the scenes moves in the healthcare space has incited rumors that Amazon is looking to gain entry into the pharmacy area via leveraging the Whole Foods physical foot print of store fronts. I’ve written several articles contending that CVS presents a compelling investment opportunity in the ever expanding healthcare space. My investment thesis was based on an aging population and growth in long-term care facilities and the pharmacy benefit management segment. All of this in a backdrop of CVS being highly acquisitive, continuing to deliver robust earnings growth, revenue growth, growing dividends and has an aggressive share buyback program in place. It’s a matter of time before CVS will trend higher and in the meantime, investors will be paid to wait via dividends and share buybacks. The wildcard may be the Amazon threat with its first real pivot after acquiring Whole Foods with subsequent potential in entering the pharmacy space as well. Continue reading "CVS Posts Robust Earnings - Compelling Long-Term Buy"