Summary
- CVS exhibits a consumer defensive business with strong competitive advantages.
- CVS is in great financial shape, growth prospects remain encouraging, and the stock is significantly undervalued.
- CVS elicits a strong buy rating.
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As we are confronted with another potential wave of COVID as well as increasing economic and political uncertainty, investors are keen to identify new opportunities that thrive amidst a COVID embroiled economic environment. Many companies in the consumer defensive investment sector exhibit strong investment allure as a result of their revenue stability, low volatility, and resistance to business disruption. CVS Health (CVS) is a prime example of such a company. With annual revenues of $257 billion a year, CVS is a formidable behemoth in the healthcare industry boasting substantial vertical integration across the retail, online, health wellness, and pharmacy segments. CVS promises a recession-resistant investment opportunity. The company boasts a competition resistant business, an encouraging growth outlook, strong financials, and the stock is considerably undervalued.
Investment Thesis
CVS remains the market leader in the retail & online pharmaceutical healthcare distribution category. The company monopolizes a substantial portion of the prescription drug delivery market, far surpassing close competitors. In the pharmacy and health benefits space, CVS displays a number of distinct business advantages that reinforce strong business performance and revenue expansion moving forward.
Business Advantages
CVS will continue to exert dominance in the retail pharmacy segment. With close to 10,000 retail pharmacies and 1,100 MinuteClinic health checkup locations distributed all across the United States, CVS has developed engrained customer & market relationships unrivaled by competitors. CVS is highly resistant to market share erosion. In fact, more than 70% of the U.S. population lives within three miles of a CVS pharmacy, 80 million CVS patients are enrolled in text messaging, CVS makes 700k visits to homes and community settings a year, and 1 in 3 Americans or more than 100 million people interact with CVS on an annual basis. Based on proximity, convenience, and visibility, CVS leverages an enduring customer base of significant magnitude. CVS has cultivated an entrenched market position with very few competitors aside from Express Scripts (NASDAQ:ESRX) and OptumRx. In fact, the largest three pharmacy benefit managers CVS, Express Scripts, and OptumRX occupy 75% of the market (180 million enrollees) with CVS alone occupying 30% of the market. It's clear that CVS continues to be an industry stalwart.
