At no point in the past four years has CVS Health (NYSE:CVS) been easy to own. CVS stock currently lies more than 50% below its mid-2015 peak price and is still within easy striking distance of multi-year lows touched in March. It’s becoming more and more difficult to be an enthused owner, or buyer.
This may well be the time to step in though… while it’s name investors have not only given up on, but a name many investors have forgotten about. ‘Expect it when you least expect it’ is good advice in the capital markets arena too.
Just know that CVS Health is never going to be what made it a great company before 2015.
For the record, it’s not the company’s fault. CVS stock was not the only pharmacy stock to lose an uncomfortable amount of ground since 2015’s highs. Shares of Walgreens Boots Alliance (NASDAQ:WBA) are off to the tune of 45% for the same timeframe. Rite Aid (NYSE:RAD) stock has been walloped, losing more than 90% of its value for the four-year stretch, driven by missteps.
There’s no exact cause for the meltdowns to pinpoint.
The advent of online pharmacies like PillPack, now owned by Amazon.com (NASDAQ:AMZN), certainly contributed. The rise and fall of the Affordable Care Act, aka ‘Obamacare’ also hurt; pharmacies were largely lost in the shuffle, and caught in the middle both coming and going.
Sky-high drug prices finally ruffled enough of the right feathers. The very concept of brick-and-mortar shopping has suffered too, exacerbating the challenges the industry simply didn’t see coming.
Whatever combination of stumbling blocks did the damage, the drugstore business finally appears to have regrouped.
CVS Health appears better positioned for that rebound than either of its rivals do. And, trading at only 7.4 times next year’s expected earnings, CAT stock is a bargain because of that turnaround.
Partnerships and CVS Stock
The industry, not unlike society, has changed. Alliances that were once strange if not unthinkable are now forming.
Chief among those unlikely pairings is, of course, last year’s acquisition of health insurer Aetna by CVS Health. The $70 billion deal not only united two behemoths of the healthcare market, but two distinctly different behemoths. Aetna is a payer, and CVS is prescriptions.
In the meantime, the company has opened more than 1,000 mini-clinics at its established pharmacies, offering consumers an alternative to a traditional visit to a separate doctors’ office.
The all-inclusive bent isn’t stopping there though. On Thursday CVS Health announced it would be opening a few hundred SmileDirect shops at its pharmacies. SmileDirect offers affordable dental alignment options that are proving preferable to conventional metallic dental braces.
It’s not full-blown dentistry, nor are walk-in clinics the same opportunity secondary care. So far, CVS Health hasn’t indicated any interest in filling cavities or offering secondary care.
That’s the shape of things to come though, and CVS is securing a solid head start on would-be competitors that may want to plug into the idea of a becoming a one-stop solution.
Bottom Line for CVS Stock
The overhang, of course, is the uncertain future of healthcare within the United States.
President Donald Trump remains in support of the idea of keeping all aspects of the business privatized, while most Democrat Presidential candidates are leaning toward a one-payer system.
Those platforms and ideas are arguably more for the purpose of scoring political points than laying the foundation for a sweeping change in how the nation’s healthcare system functions.
Though a Democratic victory in 2020 still doesn’t necessarily assure the government will take top-down control of the nation’s healthcare system, it would undoubtedly prove problematic for corporations already in the business. As Raymond James analysts wrote just a few days ago when lowering its price target on CVS, there’s a “collapse in sentiment for the payor-PBM complex” that CVS Health still operates.
The vertical and horizontal integrations CVS Health has been piecing together are well positioned to survive whatever legislation takes shape ahead.
The dealmaking, it seems, is finally paying off. And, even with its lower price target on still-sliding CVS shares, Raymond James’ analysts “believe the discount is unwarranted.”
Investors should take notice of the sweeping turn sooner than later.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.