Shares of CVS Health (CVS) are not looking very healthy. In the last six months, the stock is down more than 21%. CVS reports third-quarter fiscal 2016 results Tuesday. Can this stock return to health?
Shares of CVS have been sliding downhill since the company reported its first quarter. The company chopped 5 cents out of the second quarter and left year-end 2016 guidance unchanged at $5.80. Then, after the second quarter report, management boosted the year-end forecast by 5 cents to $5.85.
Despite two decent earnings reports, the stock keeps sinking lower.
I think investors are concerned about three things: the general climate surrounding prescription drugs, the pharmacy benefits manager selling season and the increase in the number of generic drugs, which is slowing growth.
The pharmaceutical industry hasn't done itself any favors by raising prices on prescriptions drugs or by selling mega-expensive drugs, especially in an election year. It seems the news is filled with stories about the soaring price of EpiPens or drugs like Orkambi for cystic fibrosis, which is priced at $259,000, or Harvoni for hepatitis C, priced at $189,000. If Hillary Clinton is elected President, prescription drug prices could come under pressure. (With the pounding these stocks have taken, it seems like the stock market has anticipated a Clinton win.)
CVS has lost a few important rounds during the pharmacy benefits manager selling season. Last week, Tricare -- the U.S. Department of Defense military health program -- announced that as of Dec. 1, CVS would no longer be part of its pharmacy network. Walgreens (WBA) will take its place. CVS took the business from Walgreens in 2012. It is estimated the Department of Defense spends $13 billion a year on prescription drugs, so CVS could lose not just the profits from filling prescriptions, but the earnings from military personal buying candy and gum from the front of the store. It is estimated that Tricare represents over 125 million prescriptions a year. That's a lot of boots in the store!