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Retail pharmacy chain CVS Health Corporation (NYSE: CVS ) has diversified with the goal of seizing emerging opportunities, while also aligning its business with the changing healthcare market. With recent management expansion initiatives, the company looks set to become a healthcare giant.
After retreating from its peak more than a year ago, CVS stock has become more affordable. Considering the low risk and low price, it is a good investment option today. CVS offers an impressive dividend yield of 3.1%, which is above average, and the company has been raising dividends regularly. Experts, in general, are optimistic about the stock’s future prospects, predicting 50% growth in the next twelve months.
M&A route
The Woonsocket, Rhode Island health care company’s aggressive expansion into primary care will be a key growth driver. Last week, completed the acquisition of Signify Health, Inc.. in what could be a major step towards taking the care business to the next level. Because others like Walgreens Boots Alliance, Inc. (NASDAQ: WBA ) is also expanding its primary care capabilities, CVS may face competition in that area.
Earlier this year, CVS signed an agreement to acquire Oak Street Health, another primary care provider, in a $10.6 billion deal.. These initiatives speak volumes for the company’s interest in the primary care space. At the same time, the pharmacy benefit manager business, which got a major boost after the Aetna acquisition a few years ago, continues to grow revenue.
CVS has steadily strengthened its balance sheet, with cash flow steadily growing over the past decade, enabling the company to continue its dividend program and partially repay its debt. The positive trend will continue into the current fiscal year, thereby increasing shareholder value.
Fruitful Year
In the fourth quarter of 2022, total revenue increased 10% annually to $83.8 billion. Adjusted earnings were up to $1.99 per share. Comparable store sales increased by a brisk 17.7%, reflecting strong performance by the Pharmaceuticals segment. Both profits and earnings exceeded expectations. Amazingly, monthly earnings haven’t missed the estimate once in the last six years. Looking ahead, management predicts fiscal 2023 earnings to be higher than the previous year, on a per-share basis.
Commenting on management’s growth initiatives, CVS CEO Karen Lynch said in a recent interaction with analysts, “We are making significant progress in developing our strategy, including expanding our care delivery and health service capabilities in primary care, home health, and provider engagement. Last year, we announced the pending acquisition of Signify Health, which represents an important step in our value-based care strategy. Signify will strengthen our presence at home and increase our provider capabilities.We currently estimate that this transaction will close in the second quarter of 2023.
The stock may have ended its long decline and is now on the road to recovery. Extending last week’s strong gains, CVS traded higher on Wednesday afternoon but remained below its long-term average.
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