A 'One-Stop Shop' Business Model Continues to Propel This Health Care Giant
We just can't get enough of the "Global Elite"...
Here at Stansberry Research, we use this phrase to describe the best companies in the world. These powerful, top-performing businesses have a huge leg up on the competition.
This advantage usually leads to strong returns in the shares of Global Elite companies. And that's what we're seeing in today's business...
CVS Health (NYSE: CVS) is a titan of the health care industry. We last highlighted CVS in August 2020, when shares were about 15% below all-time highs.
It's one of the most "vertically integrated" health care companies out there. This means that it has access to every part of the health care "ecosystem."
CVS's three business segments are Retail/LTC (long-term care), Pharmacy Services, and Health Care Benefits.
The Retail/LTC business – which fills prescriptions for customers and sells health and wellness products, like over-the-counter medications, basic items like gum, and beauty supplies – has brought in $73 billion in revenue so far in 2021. That's up 8.7% from the first three quarters of 2020, and it represents about 34% of CVS's overall sales.
Through its Pharmacy Services segment, CVS acts as a pharmacy benefit manager ("PBM"). PBMs serve as middlemen between drugmakers and insurance companies, negotiating lower prices and handling reimbursements.
So far this year, the PBM segment has reported $114 billion in sales. That forms about 53% of CVS's overall revenue, making it the company's largest business segment.
Health Care Benefits is CVS's newest segment. This business was formed in 2018 when CVS acquired managed-care organization Aetna in a $70 billion deal. Like other health-insurance companies, this segment collects premiums and then pays them out in claims.
The Health Care Benefits segment has reported $61 billion in revenue so far in 2021. That's up 9% from the same period last year.
These three business segments have turned CVS into a "one-stop shop" for health care. That means it can now make a little profit from your insurance plan... a little from the PBM business... and a little when you go into the store to pick up your prescription.
Not only does CVS have multiple ways to profit, but its vertically integrated business model and focused strategies allow it to better control costs and the quality of care. For example, CVS's competitive advantage and growth strategies help the company minimize its own costs and pass those savings to both organizations and consumers.
CVS is providing strong financial forecasts for the year ahead as a result...
Last week, CVS said that its full-year revenue would come in above $290.3 billion for 2021. That's up from the previous range of $286.5 billion to $290.3 billion, and above the Wall Street estimate of $288.4 billion.
The company also boosted its earnings guidance. CVS now estimates full-year earnings per share ("EPS") of at least $8.00, up from the previous range of $7.90 to $8.00 and above Wall Street's $7.96 estimate.
CVS also provided forecasts for 2022. The company sees full-year EPS of $8.10 to $8.30, compared with the expectation of $8.24. And CVS projects a 2022 revenue of $304 billion to $309 billion, beating the Wall Street estimate of $304.1 billion.
But the financial forecasts weren't the only positives coming out of the company's December 9 press release. CVS also increased capital returns to shareholders...
The company announced a new $10 billion share-repurchase plan. And CVS said it would raise its annual dividend payout to $2.20, from $2.00 per share. This is the first time that CVS has announced a new share-buyback plan or boosted its dividend payout since 2017.
That news made CVS shares soar even higher. Last Thursday, the stock finished up more than 4% and has continued to rally. CVS shares are now up more than 50% since we last highlighted the company in August 2020 and more than 40% so far this year. The stock currently sits at an all-time high.
CVS CEO Karen Lynch recently said that the company is positioning itself to take up a greater market share in the health care industry. She emphasized that it's able to do this because of the wide range of services that it offers.
Remember, CVS is a vertically integrated health care giant. That means it touches every aspect of the health care chain. And this business model gives it plenty of ways to profit. That should be a long-term tailwind for the company's shares.
Sometimes investing is simple.