Moreover, both Signify and Oak are unprofitable businesses at the moment, with a combined loss of $1.1B in 2022.Īdditionally, investors can't be too excited about the probable significant increase in CVS' net debt after waiting a few years for the Aetna debt to get to a reasonable level. Turning to Oak, CVS is paying $39.0 per share, which traded at $21.6 before the takeover news, representing an 80.5% premium. CVS is expected to pay $30.5 per share of Signify Health, which traded at around $19.8 before the buyout speculations, a 54.0% premium. So, the question that arises is why did investors turn on CVS, just as it announced the acquisitions which they knew are going to occur. Signify's health enablement platform and home-health care delivery, along with Oak's primary care clinics, will transform CVS into a complete healthcare company, similar to UnitedHealth Group ( UNH) in many ways.ĬVS - Oak St. Well, management delivered on the promise. Management explicitly mentioned over and over in earning calls that those primary care capabilities will be acquired through M&A, as building it from the ground up does not fit its timeline.

As it already operates one of the largest health insurance businesses in North America, along with more than 9,000 retail locations, a PBM operation, and Minute Clinics, what CVS is missing is primary care capabilities. The company seeks to become a fully integrated health provider. The Company is a leader in key segments of health care through its foundational businesses and is seeking to create new sources of value by expanding into next-generation care delivery and health services.ĬVS' management was as transparent as the ocean's water when it comes to its long-term strategy. The Signify Health & Oak Street Health Acquisitions

In addition, investors seem worried about the price of the acquisitions, their merits, and the additional debt that comes with them. To put it in context, CVS' CMS score received a downgrade, the company lost the Centene ( CNC) contract, Congress is investigating PBMs, and there's pressure on its retail pharmacies surrounding abortion drugs. The downturn is the result of bad news piling up, combined with large acquisition announcements. On the contrary, the stock has significantly underperformed the S&P 500 ( SPY) and the Health Care Select Sector ETF ( XLV), as it experienced a major downturn in recent months. Healthcare Services Opportunity & StrategyĬVS has emerged as the most successful company among its old retail pharmacy peers in Rite Aid ( RAD) and Walgreens ( WBA), mainly due to its transition from a retail pharmacy to a healthcare-focused company: Data by YCharts The Healthcare Benefits segment is the most profitable, with 6.5% EBIT margins, and the Retail segment is close behind with 6.3% margins. However, this segment has lower margins of 4.3%. In addition, it provides health care services through its MinuteClinic walk-in medical clinics.Ĭreated by author using data from CVS's 2022 10-KĪs we can see, the majority of CVS' sales come from its pharmacy services segment.

The Retail/LTC segment sells prescription and over-the-counter drugs, consumer health and beauty products, and personal care products. The Pharmacy Services segment offers pharmacy benefit management (PBM) solutions. The Health Care Benefits segment offers health insurance products and related services. It operates through Health Care Benefits, Pharmacy Services, and Retail/LTC segments.

Company OverviewĬVS Health provides health & ancillary services in the United States. I estimate investors will see a 12.2% annual total return in the next 5 years, and rate the stock a Strong Buy. The recently announced acquisitions should be the last pieces in the puzzle, and CVS' management has demonstrated its ability to implement and integrate large acquisitions. I believe this is the time for long-term investors to get greedy, with limited downside and significant upside, as the company continues to fulfill its long-term strategy to become a health services giant. Investors are fearful regarding CVS Health ( NYSE: CVS) due to bad headlines and question marks regarding the Signify Health ( SGFY) and Oak Street Health ( OSH) acquisitions.

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