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CVS Health (CVS) PBM Strengthens, Aetna Deal Shows Promise

CVS Health (CVS) PBM Strengthens, Aetna Deal Shows Promise
A robust 2019 PBM selling season is a tailwind for CVS Health (CVS). Additionally, the company's milestone acquisition of Aetna might alter the whole healthcare landscape in the United States.

On Sep 14, we issued an updated research report on CVS Health CVS. While increasing demand for PBM (Pharmacy Benefit Management) and specialty pharmacy was a major growth driver for the stock, its dull retail performance over the last few quarters seems to have disappointed investors. The company carries a Zacks Rank #3 (Hold).

Shares of the company have outperformed the industry in the past three months. The stock has gained 13.6% compared with the 9.7% rally of its industry.

In recent quarters, CVS Health consistently registered a strong year-over-year improvement in the top line, driven by a strong Pharmacy Services segment, which in turn, benefited from an upside in the specialty services. Also, year-over-year Retail/LTC comparisons were encouraging.

A solid 2019 PBM selling season is another positive. The company has completed more than 70% of its client renewals, roughly in line with the previous year’s count. The retention rate is currently higher than the rates witnessed over the past few years.

The company is currently moving toward completing the Aetna deal. Per CVS Health, this landmark acquisition of Aetna might change the entire Healthcare landscape in the United States. Investors are hopeful of CVS Health earning $750 million from near-term synergies post the transaction’s closure.

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Despite immense pricing pressure, CVS Health currently gains momentum through high quality service and execution, a competitive pricing as well as a unique integrated model. This in turn, allows the company to provide differentiated products and services generating savings, better health outcomes as well as convenience.

On the flip side, the company’s highly aggressive retail pharmacy business is a big concern as it faces some stiff rivalry in the pharmacy segment. This is because availability of low-cost pharmacy options and other retail businesses continue to add pharmacy departments to the company’s portfolio. Particularly, discount retailers have made some substantial inroads into gaining a major market share.

Key Picks

A few better-ranked stocks in the Medical Instruments space are Intuitive Surgical ISRG, RTI Surgical RTIX and Masimo Corporation MASI.

Intuitive Surgical’s expected long-term earnings growth rate is 14.7%. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RTI Surgical’s earnings growth rate for the current quarter is an impressive 100%. The stock has a Zacks Rank of 2.

Masimo’s long-term earnings growth rate is projected at 14.8%. The stock currently carries a Zacks Rank #2 (Buy).

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Masimo Corporation (MASI) : Free Stock Analysis Report
 
Intuitive Surgical, Inc. (ISRG) : Free Stock Analysis Report
 
RTI Surgical, Inc. (RTIX) : Free Stock Analysis Report
 
CVS Health Corporation (CVS) : Free Stock Analysis Report
 
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