On May 5, we issued an updated research report on Rhode Island-based pharmacy retail giant CVS Health Corp. CVS, which provides integrated offerings across the entire spectrum of pharmacy care.
In the last three months, CVS Health traded neck and neck with the Zacks categorized Retail - Pharmacies and Drug Stores industry. However, a dull first quarter performance with year-over-year decline in adjusted earnings dragged its share price down. Slower revenue growth on poor Retail/LTC numbers and margin debacle resulted in a dull earnings performance in the quarter.
Accordingly, the stock is trading significantly below the broader industry at present. The stock has increased 4.69% over this period, lower than the 6.38% gain of the broader industry. Adjusted earnings in the reported quarter declined year over year.
Nonetheless, we are encouraged by the strong Pharmacy Services numbers that benefited from the upside in Specialty Pharmacy. Also, despite a soft bottom-line scenario, the company reiterated its earnings 2017 outlook indicating chances of recovery ahead. We believe both the Omnicare and Target Pharmacy buyouts, which have already started to benefit CVS Health on multiple prospects, should drive enterprise value significantly in the days ahead.
Additionally, it anticipates gaining market share in the specialty pharmacy suite of services with differentiated specialty offerings, providing a high level of clinical support to patients. According to a recent data, three million people in the U.S. are currently in need of specialty treatment and the potential cost for this tends to be very high. With management emphasizing that CVS Health's specialty business remains a top priority for customers, we believe it is well positioned to tap this opportunity based on its broad, differentiated offerings, including the likes of Specialty Connect.
However, given the highly competitive retail pharmacy business, shareholders of CVS Health anticipate severe threat from the $17.2 billion mega merger between Walgreens and Rite Aid, once the deal closes. Also, the sluggish economic conditions in the U.S. might hamper the company's profit margin.
The stock currently holds a Zacks Rank #4 (Sell).
Key Picks
Better-ranked medical stocks include Hologic, Inc. HOLX, Baxter International Inc. BAX and Progenics Pharmaceuticals, Inc. PGNX. Hologic sports a Zacks Rank 1 (Strong Buy), while Baxter International and Progenics Pharmaceuticals carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.