CVS Health (CVS) was not immune from the market declines inflicted by the COVID-19 downturn. Despite being in the traditional defensive healthcare space and confined to domestic operations, the stock could not break out and participate in the broader raging bull market post-COVID-19 lows. Despite a string of better than expected earnings, generating large amounts of free cash flow, paying down debt, and returning value to shareholders, the stock has up until recently been bogged down. The Aetna acquisition has been fully integrated while demonstrating robust earnings despite the COVID-19 backdrop. The company is finally getting some long-awaited respect on Wall Street, especially in conjunction with the positive vaccine developments. CVS has seen its stock rapidly appreciate as a function of strong company fundamentals and as a COVID-19 value rotation play. Despite the current stock appreciation, CVS still presents a compelling investment opportunity as the CVS-Aetna combination will drive shareholder value for years to come.
Perpetual Stock Slump
CVS has been in a perpetual stock slump with or without COVID-19 in the backdrop. CVS has been beaten down for years, plummeting by over 50% ($113 to $52) from its multi-year highs. Due to its recent breakout with strong company fundamentals and part of the COVID-19 value rotation, the stock has elevated to above $71. The company has posted a string of positive earnings with plenty of runway left in its growth from its Aetna acquisition. This was a bold and hefty price tag to pay yet necessary to compete in the increasingly competitive healthcare space, changing marketplace conditions, and political backdrop with drug pricing pressures. CVS made a defensive yet necessary acquisition to enable the company to go back on the offensive. The combination of CVS and Aetna was a bold and successful move after initial skepticism by investors. The CVS-Aetna combination will boost long-term growth prospects, restore growth, and fend off potential competition. This combination creates the first through-in-through healthcare company, combining CVS's pharmacies and PBM platform with Aetna's insurance business. The new CVS combines its existing pharmacy benefits manager (PBM) and retail pharmacies with the second-largest diversified healthcare company. Continue reading "CVS Finally Breaks Out"