CVS Caremark (NYSE:CVS) has announced its purchase of the Miami based drugstore chain, Navarro Discount Pharmacy. With companies constantly on the lookout to enhance their customer base, such a move is also along such lines. With Navarro Discount Pharmacy already catering to a large Hispanic community along with the acquisition of Navarro Health Services, CVS will be able to enter into a specialty segment of the market which it has been working on entering.
The deal is considered to be one of the largest for the company since 2008 when it purchased 541 stores from Longs Drug. The latest acquisition of CVS will involve the purchase of the largest Hispanic owned drugstore chain in the United States comprising of 33 retail outlets.
Why the Hispanic Market is important for CVS?
The Hispanic population in the United States is considered to be one of the fastest growing populations. Seeing such an opportunity to cater to such a large market, CVS made the decision of acquiring Navarro. With the Hispanic community contributing to almost 50% of the population growth in America, CVS is bound to strengthen its customer base further. Apart from its existing customer base, and having acquired a service where the Hispanic community is the largest customer, CVS can undoubtedly add them under their target market as well thereby increasing their overall sales volumes.
Sales and Dividend Yields
Navarro stores have an annual sale of $340 million. The products sold by this pharmacy are not found in any conventional drugstore which gives it an edge over its competition. With CVS acquiring the business of Navarro, not only does it gain a larger market in the industry but it also strengthens its position. With Navarro already different from traditional stores, and with Navarro's name not to be changed despite the acquisition, CVS will benefit from the special place Navarro holds in the pharmacy market. While Navarro will not experience any kind of rebranding and customers will still get it original feel, the financial advantages will be received by CVS.
Considering the commitment CVS offers to its shareholders, the company has a very good record of providing them with increased dividends and strong share buybacks. Such positive returns given to shareholders are possible due to the strong cash flow earned by the company. The current free cash flow yield of the company stands at 4.5% which is likely to increase further by the end of the year. The dividend yield which the company offers has seen constant increases in the recent years. Recently, the company announced an increase in their dividends by 22% year-on-year to $0.75/share. Furthermore, the company is also engaging in strong share buybacks. A program for this purpose was initiated at a value of $6 billion under which the company has intentions of buying back $4 billion of common stocks.
Specialty Drugs Market
With specialty drugs seen to be a segment which CVS has made its top priority, the acquisition of Navarro helps achieve this purpose. The company already has a 15% share in the specialty drugs market which is likely to increase once the acquisition goes through. The spending of the company in this market is also likely to increase in the upcoming years. The acquisition of Navarro is thus a stepping stone for the company to be making further decisions which would help it achieve an even stronger hold in the specialty drugs market.
The company has the ability to optimize its quality and costs which is what allows them to stay positive about increasing their share in the desired market. With the Navarro acquisition and the addition of Navarro Health Services to the brand of CVS will helps in further expanding the company's specialty drugs portfolio and will help them achieve a stronger foothold in the segment which is likely to provide high benefits to them.
Conclusion
Long term prospects of the company seem bright. Not only in the recent years has the company done well with increases in their dividend yield, such a trend should be expected in the future as well. CVS is likely to continue its healthy financial performance delivery due to its increase in customer base, growth in the PBM segment as well as high dividend yields. Despite the competition prevailing in the pharmacy market in the United States, the latest acquisition has helped give CVS a good boost. Its success being shared with its shareholders through dividends and share repurchases also suggest CVS to be a company having a strong future ahead.
