Tag: CVS Health Corporation (NYSE:CVS)

Will CVS Health and Walgreens Survive?

Posted on by Noah Kiedrowski

Is it the single payer narrative being pushed by Democratic Presidential frontrunners? Is it the Amazon threat via its acquisitions of PillPack and Whole Foods that may displace traditional pharmacies? Is it the drug pricing pressures that are eroding margins and limiting margin expansion over time? Is it the secular decline in the physical footprint storefront retail space that’s hindering foot traffic and off-the-shelf purchases? Regardless of whether or not it’s singularly attributable to one of these factors or the culmination of all the aforementioned factors, CVS Health (CVS) and Walgreens Boots Alliance (WBA) are being pressured in many different directions. CVS and Walgreens have plummeted by 53% ($113 to $53) and 46% ($97 to $52), respectively from their multi-year highs. Over $110 billion in combined market capitalization has been erased from these two companies. With threats coming from all angles, will these two pharmaceutical supply chain heavyweights be able to not only survive but compete and revive their dominance in the marketplace?

Backdrop and Market Dynamics

The pharmaceutical supply chain cohort, specifically CVS and Walgreens, are simply unable to obtain firm footing in the backdrop of consolidation within the sector, negative legislative undertones, drug pricing pressures, rising insurance costs and a market that has lost patience with these stocks. All of these factors culminate into sub-par growth with a level of uncertainty as this sector continues to face headwinds from multiple directions. Many of the stocks that comprised this cohort presented compelling valuations in a very frothy market. This allure has been a value trap as these stocks continue to be a falling knife. It’s no secret that these companies have been faced with several headwinds that have negatively impacted the growth and the changing marketplace conditions have plagued these stocks. Continue reading "Will CVS Health and Walgreens Survive?" →

CVS - Earnings Implosion And Opaque Near-Term

Posted on by Noah Kiedrowski

The pharmaceutical supply chain cohort is simply unable to obtain firm footing in the backdrop consolidation within the sector, legislative backdrop, drug pricing pressures, rising insurance costs and a market that has lost patience with these stocks. All of these factors culminate into sub-par growth with a level of uncertainty as this sector continues to face headwinds from multiple directions. Many of the stocks that comprised this cohort presented compelling valuations in a very frothy market. CVS Health (CVS) was one stock that stood out as compelling value sitting, near multi-year lows in December of 2018. During the market rebound in January and February, CVS began to appreciate to new highs moving from $63 in mid-January to $70 in mid-February or an 11% move to the upside. Upon the release of its Q4 earnings, the narrative quickly changed as the transition to growth and Aneta integration is proving to be much slower than investors had anticipated, yielding an opaque situation near term for the stock. CVS has a healthy balance sheet and growing its dividend while seizing partnerships and acquisitions to propel growth into the future. It’s no secret that these companies have been faced with several headwinds that have negatively impacted the growth and the changing marketplace conditions have plagued these stocks. Regardless, until growth is restored and Aneta is fully integrated to yield a fully functional bumper-to-bumper healthcare colossus, the stock remains range bound. However, the long-term picture looks rewarding for value investors as growth initiatives and acquisitions bear fruit.

Market Challenges

The political backdrop has been a major headwind for the entire pharmaceutical supply chain (i.e., drug manufacturers, pharmaceutical wholesalers, and pharmacies/pharmacy benefit managers). Exacerbating the political climate, the drug pricing debate continues to rage on throughout political and social media circles weighing on the sector. This backdrop erodes pricing power and margins of drugs that ultimately move from drug manufacturers to patients with insurers and other middlemen playing roles in the supply chain web. Continue reading "CVS - Earnings Implosion And Opaque Near-Term" →

CVS: Successfully Fighting Back to 52-Week Highs

Posted on by Noah Kiedrowski

Back in August, I had written an article highlighting the pharmaceutical supply chain cohort, presenting the case that these stocks were inexpensive in a very frothy market. Specifically, I profiled McKesson (MCK), Cardinal Health (CAH), CVS Health (CVS) and Walgreens Boots Alliance (WBA) and made the case that these stocks presented compelling value investments as all were near multi-year lows. The four companies above have healthy balance sheets and growing dividends while seizing partnerships and acquisitions to propel growth into the future. It’s no secret that these companies have been faced with several headwinds that have negatively impacted the growth and the changing marketplace conditions have plagued these stocks. The political backdrop has been a major headwind for the entire pharmaceutical supply chain (i.e., drug manufacturers, pharmaceutical wholesalers, and pharmacies/pharmacy benefit managers). Exacerbating the political climate, the drug pricing debate continues to rage on throughout political and social media circles weighing on the overarching sector. This backdrop erodes pricing power and margins of drugs that ultimately move from drug manufacturers to patients with insurers and other middlemen playing roles in the supply chain web. In an effort to address these headwinds and restore growth, companies within this cohort have made bold moves such as CVS acquiring Aetna (AET) to form a colossus bumper-to-bumper healthcare company and Cardinal Health shelling out $6.1 billion to acquire Medtronic's Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency business. The overall cohort has been making bold acquisitions, heeding the competitive threats from the likes of Amazon (AMZN), possess great balance sheets, growing dividends, share buyback programs and more often than not posting growth albeit slower growth. These stocks presented value that provided a margin of safety that were largely de-risked considering the multi-year lows. Relative to the frothy market, these stocks were very inexpensive and witnessed a nice resurgence since proposing these stocks as value plays. CVS and Walgreens have retraced their 52-week highs as of late moving from their August lows and posting a 25% ($64 to $80) and 24% ($66 to $82), respectively. Specifically, I’ll be highlighting CVS Health as a continued value play for a long-term investment.

CVS and Aetna Combination

To further boost long-term growth prospects and fend off potential competition, CVS made a move to acquire Aetna and creates the first through-in-through healthcare company, combining CVS's pharmacies and PBM platform with Aetna's insurance business. Collectively, the acquisition is valued at $78 billion between stock and cash. 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 necessary acquisition moving into the future. Continue reading "CVS: Successfully Fighting Back to 52-Week Highs" →

Inexpensive Stocks: Pharmaceutical Supply Chain Cohort

Posted on by Noah Kiedrowski

The entire pharmaceutical supply chain cohort, specifically, McKesson (MCK), Cardinal Health (CAH), CVS Health (CVS) and Walgreens Boots Alliance (WBA) are all near multi-year lows despite still posting growth albeit slow with healthy balance sheets and growing dividends. This cohort has been faced with several headwinds that have negatively impacted the growth, and the changing marketplace conditions have plagued these stocks. The political backdrop has been a major headwind for the entire pharmaceutical supply chain including drug manufacturers, pharmaceutical wholesalers, and pharmacies/pharmacy benefit managers. Compounding the political climate, the drug pricing debate continues to rage on throughout political and social media circles weighing on the overarching sector. This backdrop erodes the pricing power of drugs that ultimately move from drug manufacturers to patients with insurers and other middlemen playing roles in the supply chain web.

In an effort to address these headwinds and restore growth, companies within this cohort have made bold moves such as CVS acquiring Aetna (AET) to form a colossus bumper-to-bumper healthcare company. Cardinal Health shelled out $6.1 billion to acquire Medtronic's Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency business. McKesson has made a string of acquisitions over the past two years deploying $1.2 billion for Biologics, $2.1 billion for Rexall and $525 million for Vantage Oncology in 2016. This was followed by a $1.1 billion acquisition of CoverMyMeds, undisclosed acquisition costs for RxCrossroads and Well.ca in 2017. Thus far in 2018, McKesson acquired Medical Specialty Distributors. Continue reading "Inexpensive Stocks: Pharmaceutical Supply Chain Cohort" →

CVS: Amazon Capitulates - Too Cheap To Ignore?

Posted on by Noah Kiedrowski

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?" →