It’s been a lackluster year so far for American pharmacy benefits manager CVS Health (NYSE:CVS). CVS stock is down 21% from its mid-February highs near $70 per share and hasn’t been able to make any meaningful moves out of the mid-50’s for the past four months.
There are plenty of valid reasons that CVS Health stock hasn’t been able to break out of its current trading malaise, but the company’s grand plans for the future are offering a lot of incentive to overlook the near-term uncertainty.
Bumpy Road Ahead
There’s no arguing that CVS stock is likely to struggle in the back half of 2019 and potentially long into 2020 as well. Traders are still not convinced that the company’s Aetna acquisition was a good move, and that doubt has cast a shadow over all of the firm’s shortcomings so far this year. Earlier this year CVS took a major nosedive after the firm pared back its outlook for 2019. Management cited lower reimbursement rates and a declining benefit from new generics as fueling the lowered expectations.
Even with those concerns on the table, CVS managed to beat expectations in the first quarter and even raised its full-year guidance. While that should have assuaged investor fears about the Aetna tie-in, the news did very little to bring CVS stock higher as investors continued to worry about declining reimbursement rates — the bread and butter for pharmacies.
Since then, CVS stock has been dealt a few other winning cards — including the Trump administration’s decision to abandon plans to cut off drug rebates in order to lower healthcare costs. However the news did very little to move the needle for CVS; the share price jumped nearly 5% when the news broke but has since given up much of that gain.
Uncertainty Ruling CVS Stock
That pullback happened because the market isn’t confident about CVS’s future, or for that matter, the future of the pharmacy industry as a whole. Investors cheered Trump’s decision to abandon cuts to drug rebates, but healthcare costs are likely to still be a hot-button issue in the run-up to the 2020 Presidential election so companies like CVS are far from being in the clear.
Plus, many are worried about Amazon’s (NASDAQ:AMZN) entry into the pharmacy industry. AMZN recently acquired PillPack, suggesting the e-commerce juggernaut is moving to disrupt the pharmacy space next.
Long-Term Investors Should Lean In
All of those concerns are worth considering, but if your investment timeline is on the longer side, CVS should most certainly be on your radar. While the firm is currently in the middle of a transitional period, it looks well-positioned to come out on the other side as a clear winner in the revamped healthcare market.
That’s because CVS will essentially become a one-stop shop for all things healthcare related. As America’s largest pharmacy benefit manager, retail pharmacy and now with Aetna under it’s umbrella — a workplace and government health plan provider — CVS has created a unique business that should thrive even as politicians continue to debate the future of healthcare in the U.S.
The firm has been working to build out its in-store clinics in an effort to give people more affordable local care options that don’t come with impossible wait-times. We are likely to see the firm’s Aetna ties add to the growing popularity of these clinics by encouraging members to utilize CVS services within their plan. CVS is hoping to employ a variety of nurses and physicians assistants with the ability to prescribe medicine to eventually offer roughly 80% of the services that a general practitioner would. Some believe that the firm will grow beyond its in-store clinics to eventually acquire urgent-care centers and physician groups, though the management hasn’t made any moves in that direction yet.
Bottom Line for CVS Stock
That future vision where CVS has created a healthcare ecosystem that gives consumers more power over their care is a huge reason to pick up CVS stock. The fact that reimbursements are declining is a huge dark cloud hanging over the firm right now, but as fellow InvestorPlace contributor Josh Enomoto pointed out — it’s hanging over the space entirely, not just CVS. That means competitors — like Walgreens Boots Alliance (NASDAQ:WBA) — and incoming rivals are burdened with the same issue and CVS actually looks best equipped to handle it.
CVS stock is cheap right now because there are so many risks facing the stock. The firm is trading at just 8x its forward earnings and the bad news has already been priced in. If you’re willing to take on some risk and you can accept that CVS is unlikely to deliver in 2019, the stock looks like an excellent long-term investment in the healthcare space.
As of this writing Laura Hoy was long AMZN.
