Over the last year, shares of CVS Health (CVS) are down 15%, but the stock could move higher based on favorable trends in the industry.
CVS Health reports second-quarter earnings results on Tuesday, Aug. 2. Sales are expected to be up 19% to $44.3 billion and the consensus is looking for earnings of $1.30 per share.
CVS has been on an acquisition spree over the last few years. In 2015, the company acquired Target's (TGT) pharmacy business consisting of over 1,600 locations. CVS also acquired Omnicare, a prescription drug and services provider, for $12.7 billion.
Through these deals and others, CVS has gone from one of the largest drug store operators to one of the largest pharmacy benefit managers in the U.S. The company has over 9,000 retail locations in 49 states. Last year, the retail pharmacies alone filled over 800 million prescriptions. Approximately 47% of revenue comes from the retail (CVS Pharmacy) and the rest comes from the CVS Caremark PBM.
In 2015, sales grew as the company won new pharmacy benefit management contracts. Last year, pharmacy services had revenue of $100.3 billion, up 13.5%.
In the first quarter of this year, the company won $13.2 billion in net new deals and retained 97% of its customers. Pharmacy benefit revenue was $28.7 billion, and the retail stores generated $20.1 billion in revenue, up 16.5%.
Analysts are forecasting second-quarter PBM sales to be $30 billion, up 22%. Although the PBM business is large, it is not very profitable. Gross margins are expected to be just 4.6% vs. the retail stores' margin of 29%.
