CVS Health stock price continued to underperform the market this year as the pharmacy industry faced significant challenges. It has dropped by over 30% this year, while the S&P 500 and Nasdaq 100 indices have soared to a record high.
Pharmaceutical retailers are in a crisis
CVS Health and other companies in the industry are in a crisis mode as growth slows, costs rise, and competition escalates.
Rite Aid, one of the biggest players in the industry, has already filed for bankruptcy, while Walgreens Boots Alliance has been kicked out of the Dow Jones index. Media reports suggest that the company may be taken private soon.
CVS Health Group is also not doing well. It recently concluded its restructuring, and the company has hinted that it may change its business strategy soon.
One of the things being considered is spinning off its Aetna business, which it acquired for $69 billion in 2018. Such a spin-off would give Aetna a smaller valuation since the combined company is now valued at $70 billion.
CVS is facing major challenges. Wages in its shops have risen in the past few years as many states have been forced to add salaries. At the same time, the company is struggling with retail theft and has been forced to lock up some products, a solution that has pushed more customers away.
Further, CVS and Walgreens were forced to pay over $10 billion to settle opioid claims, with the former agreeing to pay $5.7 billion over 10 years.
The company is also facing strong competition from companies like Amazon and Walmart, which have spent billions investing in the pharmaceutical industry.
More customers are using these retailers to do their shopping, partly because of their subscription packages like Walmart+ and Amazon Prime.
Read more: Why CVS Health stock could appreciate 35% from here
Good top-line growth, but weak bottom-line momentum
CVS Health are seeing weak top-line and bottom-line growth. The most recent financial results showed that its top-line growth did well. Its total revenue rose to $95 billion in the last quarter from $89 billion in the same period last year.
CVS Health’s nine-month revenue rose to over $275 billion from the previous $263 billion. Most of this revenue growth was because of its premiums, which rose to over $30 billionn, and services, which rose to $4.27 billion.
CVS reported a net income of just $87 million, a big drop from the $2.26 billion it made last year. This significant decline was partly because of the $1.1 billion restructuring costs that it spent. Assuming that it had not these restructuring costs, its net income would have been much lower than last year.
Analysts expect that CVS Health’s revenue rose by 3.53% to $97.1 billion in the current quarter. Its annual revenue this year will be $371 billion, followed by $386 billion in the next financial year.
CVS Health’s earnings per share is set to drop to $5.31 this year from $8.74 last year. The profitability will then recover to $6.38 next year. This performance, coupled with its planned restructuring means that the stock will bounce back. It has also replaced the former CEO Karen Lynch with David Joyner.
CVS Health stock price analysis
CVS chart by TradingView
The daily chart shows that the CVS share price has been in a strong bearish trend. It has found a strong support at $53.76, where it has failed to move below several times since June this year.
There are signs that CVS has formed a triple-bottom pattern, a popular bullish sign in the market. The 50-day and 100-day Exponential Moving Averages (EMA) have remained above the price.
Therefore, a contrarian case for the CVS Health stock price can be made. If this happens, the next point to watch will be at $66.92, the triple-bottom’s neckline, which is about 21.5% above the current level.
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