Successful Acquisitions, Specialty Business Growth Raise Prospects for CVS
Jefferies analysts upped their price target on CVS Health (CVS) - Get Report to $122 from $110 and maintained their buy rating on the stock after attending investor meetings with CVS' chief accounting officer.
"Recent acquisitions are on track, CVS' Specialty business continues to outpace the industry, and in Retail, we see a shift favoring Rx over the front-end," wrote analyst Mark Wiltamuth in a May 12 note.
Woonsocket, R.I.-based CVS in December completed its purchase of Target's (TGT) - Get Report pharmacy and clinic businesses for about $1.9 billion. As of end-April, around half of the 1,670 purchased pharmacies have been converted and store conversions are expected to be completed by summer's end, as planned, according to a presentation that accompanied CVS' first quarter earnings release on May 3.
In August, CVS wrapped up its purchase of Omnicare, a provider of pharmacy services to long term care facilities, for a total enterprise value of around $12.9 billion. In the earnings presentation, CVS said it expects to complete majority of Omnivore integration activities by the end of the year.
Meanwhile, in CVS' pharmacy benefit management business, the company recorded a 23% rise in specialty revenue in the first quarter, and volumes continue to outpace the market, CVS said.
In retail, CVS said in the earnings presentation that since the third quarter 2015 launch of the ScriptSync service, more than two-thirds of patients offered the service have adopted it.
Launched in August, ScriptSync enables patients and caregivers that have multiple maintenance medications to pick up all of their eligible prescriptions at the same time in a monthly CVS pharmacy visit.
Looking at ScriptSync, "it is clear that CVS is strategically favoring prescription fills and customer Rx adherence over front-end traffic," wrote Wiltamuth in the note. "With the Front-end now down to ~11% of sales, and the PBM able to tout higher Rx refill rates and adherence as a marketing point, we see CVS' motivation."
Also in the note, Wiltamuth wrote that the aging of the baby boomers "will be a key growth driver for CVS over the next decade."
CVS last week reported first quarter adjusted earnings per share of $1.18, up from $1.14 in the year-ago period and beating analysts' estimates of $1.16, according to Bloomberg. Net revenues were $43.2 billion, up 18.9% year-over-year. Analysts had forecast revenue of $43 billion.
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