CVS Health is Growing into an Integrated Healthcare Organization

Key Points

• CVS Health is a provider and payor of health care services offering Minute Clinic and Medicare Advantage Plans.
• The Company saw growth in all its segments except for Retail due to the decrease in COVID tests and vaccinations.
• CVS Health shares are trading near their 52-week lows at 10X forward earnings with a 2.78% annual dividend yield

Pharmacy, insurance, and healthcare services provider CVS Health Corporation NYSE: CVS shares are trading near 52-week lows despite the recent rally in the benchmark indices. The Company has evolved from a drug store chain into an integrated healthcare company offering healthcare provider and payor services.

It competes with Walgreens Boots Alliance Inc. NYSE: WBA and Rite-Aid Co. NYSE: RAD in the pharmacy benefits management segment. Incidentally, CVS Health and Walgreens agreed to a $10.7 billion settlement over their roles in the opioid crisis without admitting fault. As a result, CVS will be paying out $5 billion over ten years.

The Company is firing on all cylinders. It saw revenue and adjusted operating income growth in its Health Care Benefits, Pharmacy, and Insurance segments, with top-line growth in its retail drug store business but a (-18.9%) decline in adjusted operating income due to normalization from the decrease in COVID tests and vaccinations. 

Primary Care Services

CVS Health offers primary care services through its Minute Clinics and Signify Health network of over 10,000 physicians while providing pharmacy benefits management services and filling prescriptions for its customers. CVS is one of the world's largest pharmacy drug stores with over 9.9K retail pharmacies with over 1,100 walk-in clinics in the U.S.

By being both a provider and payor. The Company has transformed into an integrated healthcare organization looking to grow its primary care footprint.   

Health Insurer

The $69 billion acquisition of Aetna Health insurance in 2018 made CVS Health a payor of healthcare services as an insurer. Its Aetna Health insurance division added 590,000 members in its latest quarter generating 10% top-line growth. It provides health insurance products for employers, individuals, college students, healthcare providers, labor groups, government-sponsored plans, and Medicare Advantage.

Medicare Advantage is an alternative to the traditional Medicare part C insurance for seniors paid out of Social Security benefits offered by the U.S. government.

Medicare Advantage

Medicare Advantage for seniors offers HMO and PPO plans that usually include all services minus a co-pay versus the 80/20 insurer and patient responsibility mix through traditional Medicare. They also have additional services that traditional Medicare doesn't, like vision, dental, hearing, and wellness programs.

Medicare Advantage plans also cover prescription drugs with lower out-of-pocket costs. Medicare Advantage has been a growth driver for competitors like Humana NYSE: HUM, UnitedHealth Group  NYSE: UNH, Cigna Corporation NYSE: CI, and Anthem Inc. 

Consistent Earnings Beat

On Nov. 2, 2022, CVS Health reported its fiscal Q3 2022 earnings report for the quarter ending September 2022. The Company reported a non-GAAP earnings-per-share (EPS) profit of $2.09, excluding non-recurring items, versus consensus analyst estimates for a profit of $1.99, a $0.10 beat.

Revenues grew 10% year-over-year (YoY) to $81.16 billion, beating analyst estimates of $76.78 billion. Its Health Care Benefits segment grew 9.9%, with a 39.6% increase in adjusted operating income. The Pharmacy segment saw 10.7% YoY revenue growth as adjusted operating income rose 5.9% while total pharmacy claims processed rose only 3.6%.

Its Retail segment sales rose 6.9% but adjusted operating income fell (-18.9%) due to lower COVID-19 tests and vaccinations.

CVS Health CEO Karen Lynch commented, "We delivered another outstanding quarter and have raised full-year guidance as a result. We continue to execute our strategy with a focus on expanding capabilities in health care delivery, and the announced acquisition of Signify Health will further strengthen our engagement with consumers."

Raising Guidance

CVS Health raised its fiscal full-year 2022 EPS guidance from $8.55 to $8.65 versus $8.55 consensus analyst estimates. Its original range was for EPS to come in between $8.40 to $8.60. In addition, the Company raised cash flow from operations guidance ranges from $13.5 billion to $14.5 billion, up from $12.5 billion to $13.5 billion.

Weekly Rectangle Breakdown Set-Up

CVS's weekly candlestick chart illustrates the rectangle trading range it has been in since April 2022. The upper range resistance sits at $107.60, while the lower range support sits at $86.28. As a result, shares have been bucking the rising market as it heads towards 52-week lows.

The weekly stochastic is coming down as shares triggered the weekly market structure high (MSH) sell signal on the $99.98 breakdown. The weekly MSL buy trigger was flushed as shares fell below the $93.16 trigger heading towards the $86.28 lower rectangle range trendline.

The weekly 20-period exponential moving average (EMA) resistance continues to fall at $95.07, followed by the weekly 50-period M.A. resistance falling at $98.11. Pullback supports sit at $86.28 swing low and lower rectangle trendline, $83.57, $81.78, $79.33, and $77.13.