CVS Health Corp (NYSE:CVS) just announced positive fourth-quarter earnings despite its decision to stop selling tobacco products in stores last year. According to CVS, the decline in tobacco revenue was made up by Medicaid expansion, an occurrence that bodes well for CVS moving forward.
Of course, a lot of things look good for the company moving forward. Here are five reasons in particular to like CVS stock right now.
CVS Continues to Expand Its Products and Services: In January, CVS became the exclusive seller of hepatitis C drugs Harvoni and Sovaldi from Gilead Sciences, Inc. (NASDAQ:GILD). CVS CEO Larry Merlo says the drugs represent positive signs for the upcoming selling season.
And in the spirit of tapping in to the ever-growing senior market, for 2015, CVS has contracted with 20 regional and national Part D Medicare plans, where it has positioned itself as a preferred provider. CVS also acquired Coram LLC, an infusion-services company that provides intravenous administration of drugs.
Company Perception Is Managed Well: It’s said that image is everything, and CVS realizes this. Case in point: Last year, the company – formerly CVS Caremark – rebranded itself CVS Health, capitalizing on America’s growing emphasis on healthy living and lifestyles.
And in September of last year, CVS declared that it would no longer sell tobacco products, a move that the company acknowledged would affect its bottom line. But CVS was bolstered by Medicaid expansion and the redoubled efforts of the White House to get Americans to think more about health and fitness.
Strong Quarterly Sales and Growth Potential: Analysts expected 2014 quarterly revenue for CVS to stand at $36.08 billion, but revenue actually climbed 13% to $37.06 billion. Total revenue for the year was expected to be $138.33, but again, the actual total exceeded analysts’ expectations, standing at $139.36, a 9.9% increase. Revenue for the end of 2015 is projected to increase 6.8^ to $148.82 billion.
An Aging Demographic and CVS Pharmacy Services: Studies show that Americans are getting older and living longer. And with its more than 7,700 retail stores, CVS stands to reap the benefits of this longer-living populace.
Today, one in seven Americans are older than 65, and in 15 years one in five Americans will be older than 65. CVS stands at the ready with services ranging from its Minute Clinics to its in-home and mobile health services through Coram.
CVS Is a Company That Gives Back to Its Shareholders: CVS has shown that it cares about its shareholders through share buybacks and a strengthening of its dividend payout ratio. Consider that in 2010 the payout ratio was about 14%. In 2014, the payout ratio was up to 27.7%, almost double the amount for 2010. In that time, CVS’ dividend has quadrupled, from 8.75 cents in 2010 to 35 cents in its January payout.. And the company has a target payout ratio of 35% for 2018.
Bottom Line
Through rebranding and an expansion of services, CVS is transitioning from being just another drugstore chain to a provider of services and health care products that benefit both Medicaid and Medicare customers. As the U.S. population continues to age and health care services expand, CVS should find itself in a great position to remain relevant and profitable.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
