Drugstore chain and pharmacy benefits manager CVS Health Corporation (CVS), with a market cap of $91.62 billion, has managed to navigate post-pandemic challenges with remarkable adeptness and resilience.

However, the specter of questionable working conditions looms large over pharmacists nationwide. Lengthy working hours, staff shortages, and an escalating workload often leave scant room for proper patient care, potentially leading to severe repercussions for pharmacists and their patients.

Waves of protest against what they perceive as substandard working conditions and unsafe patient care surged among CVS pharmacists in Missouri last Wednesday. About 22 CVS locations in Kansas City and pharmacies inside Target (TGT) stores were temporarily shut down late last week when pharmacists, supported by staff and additional healthcare personnel, raised their voices against overworking, arguing it compromised patient safety.

At the core of the matter lies understaffed pharmacies, which impede pharmacists’ ability to give patients adequate attention. This threatens the standards of care and advances the risk of medication errors. The non-unionized pharmacists called for limits on administered vaccine quantities, improved scheduling, and additional modifications.

In the face of scarce support and resources, many pharmacists cannot deliver optimal patient care. The protest led by CVS pharmacists aims to highlight these pressing issues and chart the course for a more sustainable, patient-oriented healthcare structure that prioritizes the well-being of pharmacists and their patients.

The Impact So Far

CVS shares tumbled 2.2% on Wednesday following the announcement of a second walkout by CVS pharmacists in Kansas City, MO, within a week.

Despite the corporation’s apology for the delay in addressing their grievances and assurances of procedural improvements, recurring strike actions could detrimentally affect the quality of service delivery and impede its capacity to provide critical healthcare to consumers amid escalating COVID-19 cases and increased testing needs nationally.

The ongoing walkout might potentially cause turbulence in the COVID-19 booster shot rollout. Impact assessment remains uncertain as CVS pharmacists have not established the protest’s duration nor its corollary effects on Target pharmacy booths and standalone drugstores.

Amid severe staffing constraints, pharmacists struggle to manage the soaring demand for COVID-19 and seasonal flu vaccinations and regular prescription needs. Consequently, customers should anticipate possible delays.

The series of protests have culminated in diminished customer satisfaction and erosion of consumer confidence, compelling some to transition to alternate pharmacy providers due to the ongoing challenges at CVS.

How CVS Might Be Affected

In the ongoing scenario, if the walkout continues, it risks not only eroding customer trust and precipitating a downward slide in sales, but it could also taint the company’s reputation and brand value. This situation might indicate ineffective management, strained labor relations, and a compromised corporate culture.

Trapped in this crisis, CVS’ ability to surpass rivals and its market dominance within the healthcare sector could face significant obstacles. The walkout could inflate the financial burden on CVS due to increased costs and liabilities related to potential legal ramifications arising from contract breaches or substandard practices.

Furthermore, the company’s operational efficiency and productivity are at stake as disruptions in supply chains and work processes threaten its smooth operations. These factors could collectively destabilize the company’s financial stability and outlook. If unresolved over extended periods, the walkout could lead to substantial wealth erosion for shareholders.

However, amid this predicament, a few silver linings should be considered. Here are additional elements that could potentially shape CVS’ trajectory in the forthcoming months:

Recent Developments

CVS, holding its position as America’s largest drugstore chain, has pledged allegiance to the rising trend of biosimilars with the inception of its wholly-owned subsidiary, Cordavis. This new entity aims to liaise directly with manufacturers to commercialize or co-produce biosimilar products, reflecting CVS’ strategy to mitigate drug costs for consumers by developing biosimilar medications and conducting direct negotiations with pharmaceutical companies.

This development signals promise for consumers and investors, as CVS harbors both an industry opportunity and the extensive scale required to compete effectively with eminent drugmakers.

The repercussions of the pandemic have catalyzed a paradigm shift in the U.S. drugstore industry, mainly characterized by consolidation trends. As we progress beyond this global crisis, traditional retail has faced challenges regaining traction, particularly in comparison with more robust sectors. Amid this scenario, drugstores have emerged as epicenters for evolutionary shifts and potential mergers.

CVS has recently stepped up its strategic initiatives by actively seeking partnerships, pursuing growth, and implementing a consolidation plan. As a result of a policy adjustment initiated in 2021, hundreds of CVS branches are set for closure as part of the company’s cost-cutting measures to pre-empt potential losses.

In late 2021, the organization confirmed that it was assessing changes in population dynamics, consumer purchasing trends, and projected health requirements to assure the optimal placement of its stores for both customers and corporate viability.

CVS plans to lessen store saturation in certain areas as part of these efforts, leading to the shuttering of roughly 300 stores annually over the next three years. This strategic decision came as CVS aimed to allocate resources better and adjust to changing customer behaviors. The company anticipates that this course of action will close nearly 900 locations by the end of 2024.

Robust Financials

CVS’ total revenues increased 10.3% year-over-year to $88.92 billion in the fiscal second quarter that ended June 30, 2023, with product revenue rising 6.6% year-over-year to $60.54 billion. The company reported an adjusted operating income of $4.48 billion. Moreover, its adjusted EPS amounted to $2.21.

Attractive Valuation

CVS’ forward EV/EBITDA of 7.92x is 36.8% lower than the 12.54x industry average. Its forward EV/EBIT and Price/Sales multiple of 8.99 and 0.26 are 44.1% and 93.3% lower than the industry averages of 16.07 and 3.86, respectively.

Robust Growth

CVS’ revenue grew at CAGRs of 8.7% and 12.6% over the past three and five years, respectively. In addition, its total assets grew at 2% and 13.4% CAGRs over the past three and five years, respectively.

High Profitability

CVS’ trailing-12-month EBITDA and EBIT margin of 5.42% and 4.17% are 3.4% and 896.2% higher than the 5.25% and 0.42% industry averages. Moreover, its trailing-12-month levered FCF margin of 5.33% is significantly higher than the industry average of 0.26%.

Growing Institutional Ownership

CVS’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their CVS stock holdings.

Institutions hold roughly 77.9% of CVS shares. Of the 2,413 institutional holders, 1,090 have increased their positions in the stock. Moreover, 118 institutions have taken new positions (9,005,031 shares).

Price Performance

Even though CVS’ shares have plunged 28.2% over the past year, over the past three months, the stock gained 1.6%. Moreover, shares of CVS have gained 3.7% over the past month.

Wall Street analysts expect the stock to reach $91.53 in the next 12 months, indicating a potential upside of 31.2%. The price target ranges from a low of $80 to a high of $110.

Favorable Analyst Estimates

For the fiscal third quarter ending September 2023, analysts expect CVS’ revenue to increase 9% year-over-year to $88.43 billion, while its EPS is expected to come at $2.13. Moreover, for the fiscal year ending December 2023, analysts expect CVS’ revenue to increase 9.1% year-over-year to $351.77 billion, and EPS is expected to come at $8.60.

Furthermore, it has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Bottom Line

CVS stands in a formidable financial position, strengthened by optimistic analyst projections, attractive valuation metrics, solid profitability, and notable progress potential. The company also possesses additional commendable characteristics.

As proof of CVS’s commitment to rewarding its investors, it boasts an unbroken track record of paying dividends for the past 25 years. The firm recently announced its forthcoming quarterly dividend of $0.605 per share on common stock, payable to the shareholders on November 1, 2023.

It pays a $2.42 per share dividend annually, translating to a 3.39% yield on the current share price. Its four-year average dividend yield is 2.70%. The company’s dividend payouts have grown at a CAGR of 5.8% over the past three years and 3.4% over the past five years.

CVS’ dividends seem well-covered, signaling prudent and efficient reinvestment of earnings by management. As of June 30, 2023, the company recorded retained earnings amounting to $58.87 billion, which can be utilized to invest in furthering its growth opportunities.

Nonetheless, the recent protests underline the urgent need for revamping the pharmacy industry with a renewed focus on pharmacist and patient safety. It is crucial for the management to promptly respond to these concerns to maintain stability within the company and optimally leverage ongoing industry trends.



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