Should You Invest in CVS Health?
CVS Health Corporation is a company based in the United States. The company offers many healthcare services to its customers around the world. The company sells pharmaceutical drugs and other treatments to its customers under its pharmaceutical business. The company also offers healthcare benefits and insurance (through its acquisition of Aetna) and also sells other products and solutions.
Why You Should?
- CVS Health is a great reopening play in an investor’s portfolio. The company saw an increase in COVID costs last year and also saw a drop in demand for some products as people stayed indoors. However, once the pandemic is over, people will return to CVS stores and purchase healthcare products and benefits from the company.
- In 2018, the company acquired one of the largest healthcare insurance companies in the world, Aetna. The company was able to integrate Aetna’s business into its own and so far, it has worked out well for the company which saw a 30% increase in revenue in 2019. Aetna also offers CVS more profits as the health insurance business is very profitable.
- CVS has an extremely diverse business model, something that has helped the company grow and expand its business. Customers can purchase health insurance and coverage from the company and can also purchase products like medications from the company. The new health ecosystem created by CVS will benefit the company and investors in the long term.
- The company has reported rising revenues and profits over the past couple of financial years due to the reasons mentioned above. This has helped the company grow its business and climb back into the healthcare industry. This has also benefited investors in the company. In the financial year of 2020, the company reported revenues of around 267.9 billion and profits of around 7.2 billion. Both of these metrics are higher than what the company reported in the financial year of 2019 when they had revenues of around 255.76 billion and profits of around 6.63 billion.
Why You Should Not?
- The company faces tough competition in the retail and healthcare industry. Some of these companies include Walgreens, Rite Aid, Amazon (which has been expanding into digital healthcare), and many others. This competition might hurt the company and its investors in the future.
- CVS will face a negative political environment over the next couple of years. Both Democrats and Republicans want to find a way to reduce the cost of healthcare (both insurance and other drugs) for their constituents. If new legislation and regulation pass, it will significantly stain the top and bottom lines of CVS. This will also hurt the company and its investors.
- CVS relies on its brick-and-mortar presence around the world to reach most of its customers. Though it has been investing heavily into the digital healthcare space, the company is still behind companies like Amazon, a company that has the resources and experience to succeed. A heavy brick-and-mortar presence might hurt the company and its investors.
I think that CVS is a good long-term investment due to its position as a good reopening play, a diverse business, its further expansion into the healthcare industry, as well as rising revenues and profits. However, tough competition, a tough political environment, as well as a heavy brick-and-mortar retailer might hurt the company and its investors.