CVS: Walking Away - Amazon Effect Proving Too Great

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

I finally had to throw in the towel on CVS Health Corporation (NYSE:CVS) and walk away from the stock. Since its all-time highs in 2015, several headwinds have negatively impacted its growth, and the changing marketplace conditions have plagued the stock. Exacerbating this downward movement from the factors above, Amazon (AMZN) has entered the fray and has resulted in another leg down for the stock. The latter half of 2015 and throughout 2016 the political backdrop was a major 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)). 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”. CVS suffered a self-inflicted wound and 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 non-preferred 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 space via leveraging the Whole Foods physical footprint of storefronts. 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, 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 earnings growth, revenue growth, growing dividends and has an aggressive share buyback program in place. 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: Walking Away - Amazon Effect Proving Too Great"

CVS Posts Robust Earnings - Compelling Long-Term Buy

Noah Kiedrowski - INO.com Contributor - Biotech


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"

Is Amazon Threatening CVS Health?

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

CVS Health Corporation (NYSE:CVS) has been stuck in a sideways trend since selling off over 24% from August through November 2016. CVS fell from an all-time high of ~$112 per share in 2015 to ~$70 in November of 2016 wiping out 38% of its enterprise value. 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 major headwind for the entire pharmaceutical supply chain from drug manufacturers to pharmacies/pharmacy benefit managers (i.e. CVS and Walgreens) and the drug wholesalers in-between (i.e. McKesson and Cardinal Health). Secondly, recent 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 in many cases make CVS Pharmacy a non-preferred 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 has incited rumors that Amazon is looking to gain entry into the pharmacy space via leveraging the Whole Foods physical footprint 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 proposed sector consolidation (Rite Aid and Walgreens), 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 "Is Amazon Threatening CVS Health?"

CVS Health Check - Stock Appears To Be Consolidating

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

It’s time for a health check for CVS Health Corporation (NYSE:CVS) after reporting its most recent quarterly earnings and seeing its stock move in a wide range over the past few months. CVS reported what was ostensibly another great quarter and full-year numbers, reporting a full-year increase of 25.1%, 13.2% and 11.7% in free cash flow, EPS and revenue, respectively. After reporting its Q4 earnings, CVS held steady in contrast to the massive 17% sell-off after reporting its Q3 numbers, moving down from $84 to $70. 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 sector consolidation, aging population and growth in long-term care facilities in combination with the fact that CVS has been highly acquisitive, continues to deliver robust earnings growth, revenue growth, growing dividends and has an aggressive share buyback program in place. With its recent acquisitions of Target’s pharmacies and Omnicare, these proactive measures will significantly expand its presence and ability to dispense prescriptions to the general public and in long-term care facilities. As health care costs and prescription drug costs continue to rise and the population continues to age with the elderly comprising a larger segment of the overall population, CVS looked poised to benefit. However, during the Q3 earnings call CVS noted that recent marketplace trends had forced CVS to cut guidance for Q4 2016 and the full-year 2017 numbers. This guide-down negatively impacted shares however the long-term narrative remains intact. CVS has strong fundamentals and growth and I felt that the previous sell-off after the Q3 release was an overreaction. Since then, Q4 numbers have been released and the share price has retraced the low $80 range and appears to be consolidating for another move up. Continue reading "CVS Health Check - Stock Appears To Be Consolidating"

Realizing Gains Without Owning Shares Via Leveraging Cash

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

I’ve written many articles highlighting the advantages options trading and how this technique, when deployed in opportunistic or conservative scenarios may augment overall portfolio returns while mitigating risk in a meaningful manner. Here I’d like to focus on leveraging cash-on-hand to engage in options trading, more specifically selling covered puts. In laymen’s terms, I’ll cover option variables, an example, strategy and empirical results with commentary.

The Questions

1. Why buy a stock now when you can purchase the stock in the future at a lower price while being paid to do so?

2. Why buy stocks at all when you can make money on the underlying volatility without ever owning the shares?

Overview

Timing the market has proven to be very difficult if not altogether impossible. However creating opportunities to lock-in downward movement in a given stock one is looking to own is possible. If a stock of interest has substantially fallen to at or near a 52-week low, then one has an option to “buy” the stock at an even lower price at a later date while collecting premium income in the process. Alternatively, it's also possible to make money on the option itself without owning any shares of the company via realizing options premium gains as the underlying stock appreciates in value off its lows. This is called a covered put option, covered in the sense that one has cash to back the option contract. Leveraging covered put options in opportunistic scenarios may augment overall portfolio returns while mitigating risk when looking to initiate a future position in an individual stock. In the event of a covered put, this is accomplished by leveraging the cash one currently has by selling a put contract against those funds for a premium. It's also possible to make money on the option itself without owning any shares of the company via realizing options premium gains as the underlying stock appreciates in value. Continue reading "Realizing Gains Without Owning Shares Via Leveraging Cash"