CVS: Delivering Growth In Turbulent Times

| About: CVS Health (CVS)

Summary

CVS delivered 10% top-line growth and profits in-line with estimates.

The company is guiding toward another solid gain, a forward P/E of about 15.

The stock is a good place to hide money from bears.

CVS Health (NYSE:CVS) reported some nice earnings for its full year but some still feel inclined to throw the stock on the fire.

Don't.

For the full year the company had earnings of $5.2 billion, $4.66 per share, on revenue of $153 billion. The revenue and net income were up about 10%, the earnings per share up 15%. The company expects earnings per share to rise this year, to a minimum of $5.28/share, with positive cash flow of $5.3-5.6 billion.

These are pretty incredible numbers in the current market, and they're not subject to the kind of gyrations you might find, say, in a conventional retailer or a tech company. You can cut back on clothes or electronics, but you're going to buy the medicines you need.

What's driving CVS ever-higher isn't so much its ubiquitous pharmacies as acquisitions like Omnicare, which delivers and administers drugs to nursing homes in order to assure compliance. Compliance is a big word in medicine, as with chronic conditions such as diabetes compliance is often the difference between profitable management of a disease and expensive hospitalization. Those are savings insurers are happy to pay for.

At its closing market cap of about $98 billion, you're looking at a price/sales ratio of just about .67, not far off from the .60 of quality retailers like Costco (NASDAQ:COST). But you have a lot more assurance that sales level will be maintained, and as the earnings release notes CVS expects those sales to keep growing at 10%/year.

There are other growth drivers as well. CVS is taking over the pharmacy operations at Target (NYSE:TGT). Unlike rival Walgreens Boots Alliance (NASDAQ:WBA), CVS remains predominantly a U.S. company, so you're not worried about overseas earnings getting turned into dollars. CVS also has its own Pharmacy Benefit Manager (PBM) in Caremark, something WBA does not have. I'd much rather be halfway toward integrating Target than have to face the problems of completing the purchase of Rite Aid (NYSE:RAD) and then integrating its store network, which could lead to some closings.

For the year so far CVS is down 8.3%, against an S&P average down 9.3%. (WBA, by way of comparison, is down 14.4% this year.) The stock could fall further, in line with the market, but I would expect that to diverge as savvy investors see that CVS continues to grow both the top-and-bottom lines at double-digit rates, that it has avoided many of the problems roiling the rest of the pharmaceutical sector, and that it is U.S.-centric.

I got into the stock in the fall, and frankly I'm down on my investment, but this is one card I'm going to hold on to, because as the market re-starts, conservative investments are going to be favored first and this is a good one.

Disclosure: I am/we are long CVS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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