CVS Health Corporation (NASDAQ: CVS) reported bottom-line of $1.75 billion and EPS of $1.64 per share. This was up from $1.43 billion and $1.28 per share. The company’s revenue grew 15.5% to $44.62 billion. This was up from $38.64 billion last year, but lower than analyst’s estimations. As a result, CVS stock fell over 11% today (as of 12:01PM EST)
CVS Health announced that it plans to cut 600 employees in corporate offices. CVS Health operates one of the largest chains of retail pharmacy stores but the lion’s share of the company’s revenue actually comes from its pharmacy benefits management (PBM) division. This business acts as a middleman between organizations that provide healthcare coverage- think unions, employer, governments and drug companies. In exchange for a small fees, CVS uses its immense bargaining power to negotiate deep discounts from drug makers and then passes the savings along to its customers. The business is booming for CVS, with sales growing by double digits. CVS also enjoys customer retention rate of 97.5% , which indicates volumes about how valued its services are. In today’s scenario of ever –rising drug costs for the PBM business is likely to remain strong for years to come.
Beyond PBM business, CVS Helath also has a number of initiatives in place to continue to make its retail stores even more profitable. Its nationwide rollout of MinuteClinics provides basic healthcare services for a fee that is much lower than a trip to emergency room or a doctor office. This clinic are a big hit with customers and are driving incremental visits to the stores, which is helping to drive same store sales even higher.
CVS has multiple growth drivers in place that should keep profits growing for years on end. For the next quarter, the company guided EPS of $1.64- $1.70 and full year EPS guidance is at $5.77- $5.83.
CVS stock has seen an increase in its dividend in each of the last eight years for a total increase over this period of 708%. CVS has more room to grow with payout ratio sitting at 29% and the yield could likely be doubled to 4%. The management has not done so is because there are opportunities to grow the business organically and through acquisitions.
The great competitive advantage for CVS stock over main rival Walgreens Boots Alliance Inc is CVS’s growing pharmacy benefit management, which has over 2000 health care plan sponsors. Moreover, CVS business is much more diversified than its competitor. Strong revenue growth would continue to aid company to maintain its leading position.