Could CVS Maintain Its Momentum in a Post-Pandemic World?

Could CVS Maintain Its Momentum in a Post-Pandemic World?

Driving its way into being a full-service healthcare provider will come with challenges but also the potential for reward.

Healthcare giant CVS ( CVS -0.49%) posted results of a survey it conducted in 2021 that showed 77% of respondents said they paid more attention to their overall health at the height of the pandemic. That helped CVS as the company continues its move to become much more than just a pharmacy.

During the pandemic, the company experienced stronger customer volume as a result of vaccination appointments. A growing number of people — up 6% year over year — turned toward pharmacists and other service providers, besides their primary care physicians, for advice.

With the volume of COVID-19 patients waning recently, will CVS’ revenue and stock growth maintain their momentum? Image source: Getty Images. The company strategy is to be much more than a pharmacy

On Aug. 3, CVS said that pandemic-fueled momentum has indeed carried into 2022. Revenue for the second quarter rose by 11% on a year-over-year basis, to $80 billion. The pharmacy segment made up 64% of total 2021 revenue and the healthcare-benefits segment grew by 11% for the most recent quarter. Aetna (owned by CVS) continued its strong growth, backed by Medicare Advantage membership growth hitting an all-time high of 2 million members. As the total number of Medicare recipients continues to grow, to an expected 80 million beneficiaries by 2030 — a 5.3% rise over 2021 — the number of customers looking toward CVS for services should grow as well.

The company has implemented a strong emphasis on its customer relationships, resulting in a retention rate of 98%, which bodes well for future growth. With the vast majority of prescription customers staying loyal to CVS, along with an increase of 43 million new customers seeking COVID health services, revenue should be expected to keep increasing.

That continued growth will likely come from CVS’ plan to expand into a full-service healthcare company complete with its MinuteClinics, healthcare-benefit services, connected providers, virtual care, and its pharmacy and front-store product sales rounding out an integrated service chain. CEO Karen Lynch understands that to grow in areas of primary care, it will likely take aggressive action in mergers and acquisitions, which could even be seen by the close of this year.

CVS is reported to be in the bidding to acquire Signify Health , which would bolster its software and services for clients shifting toward value-based plans that are priced on the basis of treatment success rather than solely on the service provided. This value-add would also be in line with CVS’ actions to invest in advancing health equity in underserved communities through low-cost housing projects. Competition will provide a challenge

CVS has big plans for growth , but as the company looks to move into more areas of healthcare (specifically primary care), it will face the challenge of competition from the likes of UnitedHealth and well-financed companies like Amazon , which has made moves into healthcare through its pending acquisition of primary care provider One Medical. Both of these companies are reportedly in the mix to bid on Signify Health.

Signify’s client base would provide an acquirer access to a network of 10,000 doctors and nurse practitioners in addition to nearly 2 million patients in private Medicare Advantage and other managed-care plans last year. CVS has shown strong growth in that area, and the acquisition could cement the company as a major player offering Medicare Advantage plans.

CVS faces another challenge from its biggest direct competitor, Walgreens , which has made moves of its own into primary care through last year’s $5.2 billion acquisition of VillageMD. Walgreens intends to ramp up to 600 co-located primary care clinics across 30 U.S. markets by 2025. Should Walgreens enter the bidding on Signify, it could provide an even bigger challenge for CVS to expand by the end of the year. What’s the prognosis?

CVS has made great strides in becoming much more than a pharmacy. It’s had financial success with strategic moves that have grown the company while managing operational expenses and optimizing its services in highly populated areas of need. These changes led to the revised guidance for full-year 2022 earnings which is 2.5% above the previous guidance. The company has also made a 3.8% upward revision of full-year cash flow from operations.

As the population ages and more emphasis goes toward healthcare costs, access to value-based plans and a vertically integrated one-stop-shop could have a great impact on which healthcare providers succeed. So far, the CVS strategy […]

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