Here's Why You Should Retain CVS Health Stock for Now

CVS Health Corporation CVS is well poised for growth, backed by the continued growth across the entire range of insured and self-insured medical, pharmacy, dental and behavioral health products and services. The acquisition of Oak Street Health is expected to advance CVS Health's care delivery strategy for consumers. Yet, poor macroeconomic conditions and stiff competition remain concerns.

In the past year, the Zacks Rank #3 (Hold) stock has lost 25.6% compared with the industry's 26.8% fall and the S&P 500's 8.4% decline.

The pharmacy innovation company, with integrated offerings across the entire spectrum of pharmacy care, has a market capitalization of $88.23 billion. The company projects 6.4% growth for the next five years. It surpassed estimates in the trailing four quarters, the average surprise being 4.7%.

Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.

Key Growth Catalysts

Q1 Upsides: CVS Health's first-quarter 2023 earnings and revenues beat the Zacks Consensus Estimate. Robust sales growth across all three operating segments drove the top-line results. Within the Health Care Benefits arm, the continued growth across the entire range of insured and self-insured medical, pharmacy, dental and behavioral health products and services instills optimism. It completed the colossal $10.6-billion acquisition of Oak Street Health. Oak Street Health is a network of value-based primary care centers for adults on Medicare. The acquisition is expected to further advance CVS Health's care delivery strategy for consumers.

Health Care Benefit Shows Potential: Following the colossal acquisition of health insurance giant Aetna for a colossal sum of $70 billion, CVS Health has introduced its Health Care Benefits business arm. This segment has been exhibiting continued strong momentum for the past few quarters. In the first quarter, the segment revenues grew more than 12%. Overall medical costs were well-controlled and in line with expectations. Membership in the first quarter increased by 1 million members versus the prior year. This growth was primarily driven by the significant increase in the individual exchange business.

Upbeat Guidance: CVS Health reduced its adjusted EPS guidance for full-year 2023 to the band of $8.50 to $8.70 from $8.70 to $8.90. The Zacks Consensus Estimate for 2023 earnings is pegged at $8.76.

The company has reiterated its full-year operating cash flow projection in the range of $12.5 billion to $13.5 billion.

Downsides

Competitive Landscape: Despite significant new client wins in the course of a strong selling season, intense competition and tough industry conditions act as major impediments. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses. Competition is especially tough in the pharmacy segment, as other retail businesses continue to add pharmacy departments and low-cost pharmacy options become available. Discount retailers, in particular, have made substantial inroads in gaining market share.

Poor Macroeconomic Condition: Although prescriptions and related health care service providers like CVS stay out of general macro-economic turmoil, the recent debt crisis and sluggish economic conditions in U.S. could impact consumer purchasing power. This may also influence preferences and spending patterns and result in low prescription utilization.

Estimate Trends

In the past 90 days, the Zacks Consensus Estimate for its fiscal 2023 earnings has been down 2.4% of $8.65.

The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $346.7 billion, suggesting a 7.5% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Addus Homecare Corporation ADUS, Merit Medical Systems, Inc. MMSI and Davita Inc DVA.

The Zacks Consensus Estimate for Addus Homecare's 2023 earnings indicates 10.9% year-over-year growth. The Zacks Consensus Estimate for ADUS's 2023 earnings has moved 0.5% north in the past 30 days.

Addus Homecare has a long-term estimated growth rate of 11.8%.

Merit Medical reported a first-quarter 2023 adjusted EPS of 64 cents, beating the Zacks Consensus Estimate by 16.4%. Revenues of $297.6 million surpassed the Zacks Consensus Estimate by 5.9%. It currently carries a Zacks Rank #2.

Merit Medical has a long-term estimated growth rate of 11%. MMSI's earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

DaVita, carrying a Zacks Rank #2 at present, has a long-term estimated growth rate of 14.6%. DVA's earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 17.3%.

DaVita has lost 1.9% compared with the industry's 18% decline over the past year.

Image by Nicholas Cappello on Unsplash