How CVS is Basking in the Corona Sunlight

Including a brand-name business to your stock investing portfolio is a wise way to handle even the steepest downturn in the history of trading.

Despite these recent catastrophic losses, history also reminds us that bear markets present buying opportunities -- with two pretty self-explanatory caveats.

One is that investors must only shell out cash to buy into high-quality businesses. The second warning is that investors should be patient in waiting for their investments to make money in the long run.

Those checking out the healthcare sector now have the opportunity to add a large-cap stock and the biggest pharmacy chain operator in the country: CVS Health (CVS). 

Most of us are familiar with CVS Health since it's a widely popular retail pharmacy. Actually, CVS fulfills 1 of every 4 retail pharmacy prescriptions in the US. That’s roughly 26.6% of the entire population.

Now, my primary reason for suggesting CVS is that it’s the go-to place for customers during and even in the absence of the COVID-19 pandemic.

In a regular buying climate, the company is set to rake in long-term gains, thanks to the daily essentials in its catalog ranging from toothpaste to lifesaving prescriptions.

During this ongoing health crisis, CVS proved to be even more valuable to consumers. In fact, the company is expected to explore a new market once the country returns to its normal state.

With the spectrum of services offered by the company, CVS manages to cater to practically all the needs expected from the healthcare system.

Apart from its retail pharmacies and clinics, it also has a dedicated senior pharmacy sector that takes care of over 1 million patients every year.

CVS serves more than 37 million in terms of traditional healthcare insurance offerings while its pharmacy benefit manager operation looks after roughly 105 million individuals -- that’s nearly a third of the country’s population.

It was in late 2018 when CVS made a meaningful transaction courtesy of the acquisition of health insurer Aetna. The deal, which amounted to approximately $70 billion, was hailed as a game-changer for the retail giant.

Although it can be unusual to regard an insurance company as a fast-growing business, the addition of Aetna played a key role in CVS’ organic growth rate. This acquisition is estimated to provide a boost in the company’s sales, with the full impact of the deal expected to be realized sometime between 2020 and 2021.

In terms of revenue growth, CVS saw a 32% growth from its 2018 earnings to reach a total of $256.7 billion in 2019. Realistically though, this may not be the typical growth pace for the company. The jump may be primarily due to the Aetna deal.

CVS Health’s largest segment is still its pharmacy services division, which generated $141.5 billion in sales, recording a net income of $5.1 billion. Its retail sector raked in $86.6 billion while its healthcare benefits sector brought in $69.6 billion.

For 2020, CVS is anticipated to have a cash flow somewhere between $10.5 billion and $11 billion.

Although its business has been doing quite well despite the pandemic, with the company adding 50,000 positions just last March, CVS remains on the lookout for interesting business ventures.

One of its recent experiments is working with UPS (UPS) in the latter’s drone service called UPS Flight Forward. Basically, the two companies joined forces to fly prescription drugs to the customers in a Florida retirement community.

The “test” community is the biggest retirement community in the US called The Villages. This is located near Orlando, which is home to more than 135,000 residents.

This joint effort is anticipated to bolster the demand in nearby areas as well, with CVS and UPS eyeing the expansion of their operations in a month or so.

With almost 9,900 retail branches, 1,100 walk-in clinics across the country, and the addition of this new partnership with UPS, CVS has definitely earned its title as the “trust front door to healthcare.”

Pharmacies are not considered exciting businesses. Basically, these are convenience stores that just happen to offer prescription drugs as well. 

Although that might be true, CVS Health is not your run-of-the-mill pharmacy. Truth be told, the chain’s terrifying efficiency is gradually replacing your doctor.

At the moment, CVS pays its shareholders $0.50 in dividends every quarter. While the payouts have not increased since 2017, the dividend still yields a decent 3.2% annually. It’s a respectable payout and one that’s not in any imminent danger despite the ongoing crisis. 

Taking into consideration its valuation, CVS Health can be purchased for roughly over 7 times its Wall Street profit estimate for 2021.

No company of this caliber has been this cheap in the past decade.