CVS Healthcare
Fundamental analysis
CVS Healthcare is an American company that owns a large chain of pharmacies, health insurance retailer Aetna, and other healthcare companies. The company belongs to the S&P 500 index, has over 300,000 employees and annual sales of USD 322 billion in 2022.
Covid and the months that followed showed the importance of well-staffed, well-equipped healthcare facilities. It is staffing and rising inflation that is the main issue facing the healthcare industry for the next few years. CVS will, of course, also be struggling with this. One way to combat rising costs and staff shortages is to merge or buy out competitors. Economies of scale and expanding the portfolio of services can help any company.
CVS entered into negotiations earlier this year to buy Oak Street Health (NYSE: OSH) for about $9.5 billion in cash. CVS expects that purchase could be completed this year. OSH focuses on primary medical care for the U.S. elderly, and CVS would expand its service portfolio with a new segment and the know-how therein.
In the long term, this strategy makes sense, but at the cost of very high debt in the short term. CVS itself expects that this transaction could have a positive impact on the company’s turnover and earnings in about two years from the completion of the transaction.
Results
The company is steadily increasing its turnover by 10% per year. For the year 2022, it has reached a turnover of USD 322.5 billion. Profit increased but only by 1.3% to USD 17.5 billion. CVS has also purchased several companies in 2022, including Signify Health for USD8bn (pending final regulatory approval, the deal is expected to be completed in 1H2023). The company also expects a 10% increase in sales in 2023. Turnover growth looks steady, but with large capital expenditure.
Technical analysis
CVS is a countercyclical or defensive stock, so it is not surprising that its Beta is only 0.65. According to the technical analysis, this stock is now in a downtrend. Long-term support at around $88 per share has kept the price close for several weeks. Significant resistance is not evident on the chart. The RSI is holding in the neutral zone.
Conclusion
CVS is definitely an interesting stock for portfolio diversification with great potential for the future. The defensive stock offers appreciation (or at least maintenance) of its value in times of uncertainty and economic downturns. The short-term outlook is highly uncertain given the company’s heavy investment in new products and services.