CVS Same-Day Delivery To Fight Amazon Is Tough Pill To Swallow

CVS Health ( CVS ) announced same-day pharmacy delivery in certain metro areas starting next year and in New York starting next month as it girds for an approaching onslaught from ( AMZN ). Next-day delivery will be available across the country in 2018.

Meanwhile, CVS reported slightly better-than-expected third-quarter earnings on Monday amid reports that it could finalize a blockbuster deal to buy health insurer Aetna ( AET ) before the end of the year.

Although expanding into health insurance seemed like a radical way for the drugstore operator to protect its turf, same-day and next-day delivery may be even more of a last resort for CVS. That's because giving customers a seamless way to get their medicine without popping into one of about 9,700 stores could deal a blow to nonprescription sales.

"CVS would rather not go down this path but needs to," noted Matt Sargent, senior vice president of retail at the Magid research firm. The move is a reflection of its "level of concern" about the threat from Amazon.

Shares fell 3.5% to 66.80 on the stock market today , hitting their worst levels since February 2014.

Aetna shares rose 1 cent Monday to 177. Aetna climbed 2.7% Friday after a Reuters report that CVS could lift its offer price for Aetna to $70 billion and that terms could be announced in December.

CVS earnings fell 8.5% to $1.50 a share as revenue grew $3.5% to $46.18 billion. Analysts had expected EPS of $1.49 on sales of $46.17 billion according to Zacks Investment Research. Same-store sales fell 3.2%, slightly better than expectations. Pharmacy same-store sales fell 3.4%, depressed by introductions of generic medicines.

CVS narrowed its guidance range for full-year earnings to $5.87-$5.91 from $5.83-$5.93, lifting the midpoint by a penny to $5.89. Analysts had expected $5.88 before CVS' 1-cent beat in Q3, according to Zacks Investment Research.

CVS management noted that 1,600 locations now provide home delivery, but characterized that volume as "fairly small." Asked about the potential cost of a broad expansion in delivery, the company said it had been able to use its scale to negotiate an attractive rate. Many of the details are still apparently being drawn up, as management noted a possibility that delivery might be free to customers with the purchase of front-store merchandise.

CVS has been under pressure amid soft front-end store sales and worries about a looming competitive threat from Amazon, which numerous analysts now expect to enter the $300 billion prescription retail market. Amazon would likely buy a prescription benefit management firm or strike a deal with UnitedHealth Group ( UNH ) to navigate the regulated prescription industry, industry observers believe.

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Analysts have been somewhat divided over the benefits of a CVS-Aetna deal, with some saying it would provide negotiating leverage with drug manufacturers and others warning that other health plans might distance themselves from CVS. Antitrust also may be an issue.

CVS didn't comment on speculation about the Aetna deal, but instead held out its new deal to provide claims processing and prescription fulfillment for Anthem ( ANTM ) as its biggest highlight.

A CVS-Aetna deal is seen as a challenge to the dominance of UnitedHealth Group, the nation's largest insurer and a competitor to CVS' pharmacy benefits manager business via its OptumRx PBM business.

But investors so far aren't convinced. UnitedHealth shares have marched higher since news broke about the CVS-Aetna merger talks on Oct. 26. UnitedHealth shares closed up 0.8% on Friday, scooting higher amid word that CVS could pay $70 billion for Aetna.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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