CVS: Amazon Capitulates - Too Cheap To Ignore?

Noah Kiedrowski - INO.com Contributor - Biotech - CVS


Introduction

CVS Health Corporation (NYSE:CVS) recently touched down to a 52-week low of ~$60 per share which is a drastic decline from its all-time high of $112 in 2015 translating into a nearly 50% slide in its shape price. Its P/E ratio is in sub-10 territory against an S&P 500 average of 24, suggesting CVS is roughly 60% cheaper than the average stock. Its decline has unfolded in the face several headwinds that have negatively impacted its growth, and the changing marketplace conditions have plagued the stock. Starting in the latter half of 2015 and still unfortunately persisting, 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)). As an extension of the political climate, the drug pricing debate has not subsided and continues to be a hot-button issue weighing on the overarching sector. In an effort to address these headwinds and restore growth CVS has made a bold $69 billion acquisition of Aetna (AET) to form a colossus bumper-to-bumper healthcare company. This new CVS will combine its existing pharmacy benefits manager (PBM) and retail pharmacies with the second largest diversified healthcare company. This is a bold and hefty price tag to pay yet may be necessary to compete in the increasingly competitive healthcare space in the face of drug pricing pressures. CVS is making a defensive yet essential acquisition moving into the future. As CVS transitions and realigns its business to adapt to the changing healthcare space along with Amazon’s (AMZN) competitive threat diminishing, I feel the stock is too cheap to ignore at these levels. Initiating a position near ~$60-$65 may be a substantial long-term investment for long-term value and appreciation.

Amazon’s Healthcare Capitulation

Amazon has officially entered the retail space via the Whole Foods acquisition. It had been rumored for months that Amazon was gearing up to gain entry in the potentially lucrative $560 billion prescription drug space by leveraging the Whole Foods storefronts. The speculation was rooted in Amazon’s ramped up hiring and talent acquisition to build an internal pharmacy benefits manager for its own employees. This internal effort was viewed as a proof-of-concept for the broader drug supply chain effort. Amazon has a health team that’s focused on both hardware and software projects, like developing health applications for the Echo and Dash Wand. Its cloud service, Amazon Web Services, continues to dominate the health, life sciences, and technology market as well. Amazon still has the potential with its technology and reach to disrupt the current marketplace however as of now Amazon has decided to not pursue this business in the near future. Continue reading "CVS: Amazon Capitulates - Too Cheap To Ignore?"

Trump Tweets Create Opportunity for Investors

Matt Thalman - INO.com Contributor - ETFs


When Donald Trump goes to Twitter Inc. (TWTR) to voice his negative opinions, investors should begin trying to find opportunities. Over just the past few weeks we have seen two separate occasions in particular in which the President of the United States has directed negative tweets at specific industries or companies. In both cases, first with Amazon.com Inc. (AMZN) and more recently with The Organization of Petroleum Exporting Countries (OPEC), his tweets have sent asset prices lower for a short period, before they have recovered, opening up big opportunities for investors.

Amazon

The end of March, beginning of April, Donald Trump assaulted Amazon with some tweets. First, it was that the company paid little to no state and local government taxes and then it was that the e-commerce company was a ‘scam’ which costs the US Post Office and therefore the American people, billions of dollars a year. Another string of tweets pointed the finger at Amazon claiming it was the reason thousands of retailers were going out of business, and millions of US workers had been laid off.

The tweets from Trump sent Amazon shares lower each day he would reignite his attack on the e-commerce giant. A 1-month chart of Amazon shows how the stock fell during the Presidents attacks and has since recovered.

Trump Tweets
From Yahoo Finance

Despite the fact that the President attacked Amazon and no real solution has come from the issues he pointed out, Amazon’s recovery appears to be nearly complete. This is not to say that the problems with Amazon not paying taxes or its contract with the Post Office couldn’t be reignited again in the future. But as most analysts have noted, the Presidents threats and claims against Amazon have no real teeth. Continue reading "Trump Tweets Create Opportunity for Investors"

CVS: Aetna Acquisition - Desperation or Prudent Acquisition

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

CVS Health Corporation (NYSE:CVS) is going all in with a $69 billion acquisition of Aetna Inc. (NYSE:AET) to form a colossus bumper-to-bumper healthcare company. This new CVS will combine its existing pharmacy benefits manager (PBM) and retail pharmacies with the second largest diversified healthcare company via the proposed Aetna acquisition. This is a hefty price tag yet may be necessary to compete in the increasingly competitive healthcare space in the face of drug pricing pressures. The $69 billion acquisition will not come cheap and require issuing debt and diluting the share base as this will be funded via a combination of stock and cash. CVS has been in a downward spiral since its all-time highs of $112 in 2015 to lows of $67 in 2017, translating into wiping out 40% of its market cap. Several headwinds have negatively impacted its growth, and the changing marketplace conditions have plagued the stock. Exacerbating this downward movement, Amazon (AMZN) has entered the fray and has resulted in another leg down for the stock. The latter half of 2015 through 2017, 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)). 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. The Amazon threat has become a formidable challenger in this space as it has in the past with other industries with its first real pivot after acquiring Whole Foods with major plans in entering the pharmacy space. I believe CVS will undergo short-term stock pressure but long-term appreciation as this move was a defensive yet necessary acquisition moving into the future.

CVS Health/Aetna

Aetna Acquisition

The Aetna acquisition creates the first through-in-through healthcare company, combining CVS's pharmacies and PBM platform with Aetna's insurance business. Per the agreed terms, Aetna stockholders will receive $207 per share, $145 in cash and $62 in stock. Collectively, the acquisition is valued at $78 billion.

"This combination brings together the expertise of two great companies to remake the consumer healthcare experience." "With the analytics of Aetna and CVS Health's human touch, we will create a healthcare platform built around individuals." CVS President and CEO Larry Merlo said in a statement. Continue reading "CVS: Aetna Acquisition - Desperation or Prudent Acquisition"

Big Tech Earnings Boost NASDAQ

Hello traders everywhere. The NASDAQ has gained over 2% today spurred by fantastic earnings from the tech sector, which has seen substantial profit taking as of late.

Amazon.com Inc (NASDAQ:AMZN) reported earnings per share of 52 cents a share, way ahead of Wall Streets estimate of 3 cents a share. Amazon Web Services, the company's cloud business, was its primary driver for growth, with sales leaping 42% on a year-over-year basis.

Amazon also received a boost in sales from its Whole Foods acquisition back in August.

MarketClub's Mid-day Market Report

Meanwhile, the Microsoft Corporation (NASDAQ:MSFT) beat Wall Street earnings expectations by 12 cents a share as its commercial cloud business topped $20 billion in annualized revenue for its fiscal first quarter. The stock was on track to post its biggest one-day gain since October of 2015. Continue reading "Big Tech Earnings Boost NASDAQ"

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"