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CVS Health Gains on Pharmacy Services, Retail Remains a Drag


On Sep 12, we issued an updated research report on CVS Health Corp. CVS, a provider of integrated offerings across the entire spectrum of pharmacy care. The company currently carries a Zacks Rank #3 (Hold).

Post a better-than-expected performance in the second quarter, CVS Health was observed trading significantly ahead of the industry. Per the last three months, the stock has inched up 2.5% in contrast to the industry’s 1.9% decline over the same period.

On a positive note, strong Pharmacy Services numbers benefited from the upside in Specialty Pharmacy. Another encouraging fact is that despite a year-over-year decline in hepatitis C script volume in the recently reported second-quarter 2017 on lower new patient enrolment, CVS Health’s Specialty business growth outperformed the market.

The company is currently working on integration of Omnicare’s specialty operation into the company’s existing specialty business profile. Besides, CVS Health’s Specialty Connect offering continues to experience strong surges in prescription volumes along with high satisfaction scores with patients, payers and providers.

We are also impressed with the company’s robust PBM (Pharmacy Benefit Management) selling season. Incidentally, CVS Health had already confirmed a very successful selling season this year based on which, the expected revenue for 2017 was increased last quarter.

Regarding 2018 PBM selling season, which has already begun from the start of this current year, the company had a successful second-quarter 2017 despite the magnitude of bidding opportunities being flat to down year over year. While gross new business was $5.4 billion, net new business commendably reached $1.8 billion. These new business numbers include the loss of the FEP (Federal Employee Program) specialty contract but lack any impact from individual Med D PDP. The company has already completed about 70% of client renewals for 2018.

However, the highly competitive retail pharmacy business poses severe threats. The company has delivered sluggish numbers within the retail Long Term Care business in recent past. Per the company, the decision to restrict itself from participating in the TRICARE network and many fully-insured prime networks was due to the negative impact on Pharmacy sales and script comps. Also, dull economic conditions in the United States might hamper company’s profit margin.

Other Key Picks

Some better-ranked medical stocks are Edwards Lifesciences Corporation EW, Lantheus Holdings, Inc. LNTH and Chemed Corporation CHE. Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy), while Lantheus Holdings and Chemed carry a Zacks Rank #2 (Buy) You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 22.2% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has surged 41.2% over the last six months.

Chemed has a long-term expected earnings growth rate of 10%. The stock has gained around 5.3% over the last six months.

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