What does an unexpected rise in sales mean for the bottom line of this leading pharmacy stock?

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ÖIn recent years, pharmacies have drawn to a core model that offers health services as well as traditional retail offerings. This was recently issued by Walgreens Boots Alliance‘s move to invest US $ 1 billion over four years in building joint pharmacy clinics. Before that we saw CVS health (NYSE: CVS) acquire Etnawho has long been known for their medical health management through their insurance benefits.

With the announcement of the acquisition of Aetna, CVS has moved closer to its goal of becoming a (self-proclaimed) Premier Health Innovation Company. Now that the company continues to expand, a competitor is basically handing him a stack of patients and prescriptions. But can this be a boost to CVS’s bottom line?

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The good and the bad

In early July, Nevada-based Intermountain Healthcare announced it would close the doors to 25 of its retail pharmacies, which are considered low-volume pharmacies. The good news for Intermountain customers is that their prescriptions and medical information will be forwarded to the local CVS Health pharmacy. this is expected to happen in August. The good news for CVS is that this move will attract new customers and patients, which in turn will result in additional unexpected, albeit local, revenue.

However, each of these points has a downside. In the case of CVS, these new customers are unlikely to increase earnings because the 25 pharmacies are low-volume retail locations. And as for the patients, as mentioned, their prescriptions and medical information will be given to CVS – which is less good considering a data breach CVS experienced earlier this year put 1 billion of its user records at risk. This information included user IDs, medical search information, and email addresses. Fortunately, the company claims no harm has been done to its customers or customer data. However, this could certainly caution new customers and patients who find their way to CVS from Intermountain.

This move by Intermountain could be an example of an emerging trend. As companies change their strategies in the wake of the COVID-19 pandemic, experts see consolidation in the form of mergers and acquisitions in healthcare companies. Those who couldn’t stand the financial blows of the pandemic will end up being devoured by bigger players.

The transitions are already beginning in a few places: Walgreens is working with VillageMD to build one-stop pharmacy clinic stores, and MinuteClinics is becoming increasingly rooted in CVS locations. We are also seeing hospitals taking steps to introduce in-house pharmacies. According to the Drug Channels Institute, 26% of hospitals had specialty pharmacies in 2019, compared to 20% in 2018 and less than 9% in 2015. In larger hospitals – those with at least 600 hospital beds – that number rises to 89% own specialist pharmacy.

The bottom line

CVS is the clear leader among retail pharmacies with 24.8% of the prescription drug market share in 2020, while Walgreens is not far behind with 19%. As the consolidation continues, expect more scenarios like that of Intermountain and CVS where pharmacy chains that include health services pick up new customers and prescriptions from those who want to close retail locations. However, I don’t see any low volume pharmacies boosting the bottom line of a mega-chain in such a way that investors are particularly excited.

But CVS is also worth a look for long-term investors who keep an eye on the healthcare market and in particular retail pharmacies. The company has had an excellent first quarter, with sales up 3.5% year-over-year while giving investors 6.8% year-over-year earnings per share. Looking ahead to the remainder of 2021, the company has raised its guidance 2%, resulting in a revised guidance for full year earnings of $ 7.62 per share in the middle of the range.

That revised forecast – and a current share price ($ 81) sunk 17% off its average analyst price target of $ 95 – could give investors something to really get excited about regardless of the impact of Intermountain.

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Jeff Little has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.


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