Stockchase Opinions

Steve MacMillan CVS Health Corp CVS-N TOP PICK Jan 03, 2007

Like the Shoppers Drug Mart of the US. Benefiting from an aging population. Generics are growing and retail pharmacies make more money off generics then branded drugs. Continuing to grow. Weak competition.
$30.840

Stock price when the opinion was issued

specialty stores
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WATCH
Investor is down 25%.

Weak technical structure. 200-day MA falling, and stock price is below that. Longer-term weekly charts look just as tough. Earnings are tough in physical stores. Trump's (perhaps empty) threats to remove middle benefits management has impacted stock. Good yield at 5.81%, but how secure is it?

Keep a close eye on it, as technicals are telling you that things could get worse.

DON'T BUY

Company fundamentals are challenging. On paper, looks like a good model. But in practice, fail after fail. Overhang of healthcare malaise. Doesn't matter what the price is, you need fundamental quality to create value. Pass.

DON'T BUY

It has been a turn-around for a long time but hasn't performed well. It lost a few key contracts in the past two years. He prefers United Health.

WAIT
The 2nd-best performer on the S&P in January

Shocking that it rallied 25.8% in January, since it was spiralling last year, down 43%. There's no clear catalyst for their rally, though it helped that Medicare payments would increase from 2025 to 2026. He's waiting for their report next Wednesday before deciding.

BUY

He just bought it after earnings. Finally, we're seeing positive momentum with earnings growth and lower costs. It's an easy trade. An investor would now see a fundamental turnaround.

DON'T BUY

Is up 50.5% this year, benfitting from chief rival Walgreens are going private, and CVS' managed care business, Aetna, is putting up better numbers. CVS got too cheap last year, but mounted a comeback after hiring a new CEO. But it remains a drugstore chain, which he doesn't like, given Amazon's dominance.

BUY

Numbers are improving under the new CEO, with good numbers from Aetna and core drugstore business (they closed the weak performers). Though the health insurers like UNH have taken it on the chin recently, he expects Aetna to score. They report Thursday.

STRONG BUY

Was down 43% in 2024, led by their managed care business, to be one of the worst stocks of 2024. But that business is now finally turning around, +12% in revenues in Q2 YOY, and revenues beating the street. So, the health insurance side is doing much better. They raised revenue guidance and full-year earnings. Firing on nearly all cylinders: drug store, pharmacy benefits, health service division (including in-store medical clinics) saw 10.2% revenue growth. Also, the front-of-store and pharmacy delivered a strong revenue beat and growing 12.5% YOY as competitors have vanished (i.e. RiteAid). Pharmacy sales were +18% YOY. CVS shares are up 58% this year and trades at only 11x PE and pays a 3.7% dividend. The CEO has done a remarkable job this year. Has more room to run.

DON'T BUY

Turnaround story mainly due to activist actions, and that's not a great reason to buy. Its retail pharmacy space continues weak, and that's dragging down the pharmacy benefits side. Above 200-day MA, which is starting to move higher. Earnings growth still tepid at 6.5%.

PARTIAL BUY
UNH question

CVS is a cheaper way to play the private benefits market, so he added that recently and it offers a better valuation than UNH.