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CVS Health Corporation (CVS): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

By: Zacks.com
Posted: 2/26/2014 7:00:00 AM
Referenced Stocks: EPS;CVS;PBM;PDP

Summary:
CVS posted a decent third-quarter 2014 with 9% year over year rise in adjusted earnings per share (EPS) to $1.15. EPS topped the Zacks Consensus Estimate by $0.02 as well as the company-provided guidance range of $1.11 to $1.14. Net revenue, on the other hand, increased 9.7% to $35.02 billion, edging past the Zacks Consensus Estimate of $34.61 billion. The generic wave in the pharmaceutical industry continues to work in CVS' favor, as seen in the consistent margin expansion of the company. Specialty revenues rose 53% on Sovaldi along with the addition of the Coram. We are also impressed with CVS' strong guidance for 2014 wherein an increased adjusted EPS projection reflects strong year-over-year growth and the company's optimism about the future. On the contrary, the decline in front-end sales was disappointing. Moreover, the competitive landscape remains tough. We also keep an eye on the tussle for market share gain in the PBM as well as retail pharmacy segment. Thus, we reiterate our Neutral recommendation on the stock.

Overview:

Headquartered in Woonsocket, RI, CVS Health Corporation (formerly known as CVS Caremark Corporation) (CVS) is a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care.

On Sep 3, 2014, CVS Caremark Corporation announced a change of its corporate name to CVS Health to reflect its broader health care commitment and its expertise in driving innovations needed to shape the future of health. CVS Health includes the company's retail business, which continues to be called CVS/pharmacy its pharmacy benefit management business, known as CVS/caremark its walk-in medical clinics, CVS/minuteclinic and its growing specialty pharmacy services, CVS/specialty. With 7,700 retail pharmacies, 900 walk-in medical clinics, a leading pharmacy benefits manager with nearly 65 million plan members, and expanding specialty pharmacy services, CVS Health enables people, businesses and communities to manage health in more affordable and effective ways.

The company's Pharmacy Services business provides a full range of prescription benefit management (PBM) services including mail service dispensing pharmacy, specialty pharmacy and infusion service, Medicare Part D Services, plan design and administration, formulary management, discounted drug purchase arrangement and claims processing, retail pharmacy network management system, prescription management system, clinical services, disease management services and medical pharmacy management services. The specialty pharmacies (including mail order and retail specialty pharmacy) support individuals who require complex and expensive drug therapies. Moreover, CVS has implemented steps to make prescription drugs more affordable to consumers. Some of these programs are: Maintenance Choice and Pharmacy Advisor. Maintenance Choice is a flexible fulfillment option that gives patients the choice of picking up their 90-day supply of maintenance medications from any CVS/pharmacy store or obtaining them through mail order. Pharmacy Advisor is a medication adherence program for chronic conditions. Pharmacy Advisor was made available to Medicare clients from Jan 1, 2013.

With Medicare Part D Services, CVS Health participates in the administration of the drug benefit added to the Medicare program under Part D of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Part D) through the provision of PBM services to the company's health plan clients and other clients that have qualified as Medicare Part D prescription drug plans (PDP).

As of Sep 30, 2014, the Pharmacy Services Segment operated 26 retail specialty pharmacy stores, 11 specialty mail order pharmacies, 4 mail service dispensing pharmacies and 84 branches and 6 centers of excellence for infusion and enteral services located in 40 states, Puerto Rico and the District of Columbia.

The Retail Pharmacy segment sells prescription drugs and general merchandise (front store products), which include over-the-counter (OTC) drugs, greeting cards, film and photo finishing services, beauty and cosmetic products, and convenience food through CVS/ pharmacy and Longs Drugs retail stores as well as at CVS.com (the company's online store). The company also operates retail health care clinics under the name, MinuteClinic. These clinics, overseen by nurse practitioners and physician assistants, aim to treat minor health conditions, perform health screenings, monitor chronic health conditions and offer routine vaccinations. They are open seven days a week and do not require an appointment, thus discouraging unnecessary and expensive emergency room visits.

As of Sep 30, 2014, the Retail Pharmacy Segment included 7,779 retail drugstores (of which 7,714 operated a pharmacy), 17 onsite pharmacies, 936 retail health care clinics, and the online retail websites, CVS.com and Onofre.com.br. The retail drugstores are located in 44 states, the District of Columbia, Puerto Rico and Brazil. The retail health care clinics operate under the MinuteClinic name, and 928 are located within CVS/pharmacy stores.


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