CVS Says Sales Will Accelerate as It Offers More Health-Care Services, Builds on Pandemic Gains

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  • CVS Health said its sales will accelerate in the year ahead, as it offers more health-care services and combines its drugstores and insurance business.
  • The drugstore chain and health insurer held its first investor day since the start of the pandemic and since CEO Karen Lynch took the helm.
  • Lynch said the company is uniquely positioned to help fix a broken health-care system that frustrates customers and keeps increasing in cost yet often delivers poor outcomes.

CVS Health said Thursday that it sees sales growth accelerating as it offers more services at drugstores and customers' homes to make health care more affordable and convenient.

Shares of the company rose 4.52% to close at $97.31 on Thursday. They touched a 52-week high of $97.77 earlier in the day.

The drugstore chain and health insurer shared its strategy at its first investor day since the start of the pandemic and since the company's new CEO Karen Lynch took the helm.

Lynch told investors that CVS will build on new habits consumers developed and the trust it gained during the pandemic, as people used telehealth and turned to drugstores for Covid tests and shots. It has administered more than 50 million Covid vaccines and about 29 million tests as of the end of November. Those two pandemic-related services have attracted more than 32 million new customers, the company said.

She said CVS is uniquely positioned to help fix a broken health-care system that frustrates customers and keeps increasing in cost yet often delivers poor outcomes. About 85% of Americans live within 10 miles of a CVS store. Each day, the company said about 4.5 million consumers visit those stores.

"The market is ripe for change that only we can deliver," she said.

Becoming a health-care destination

CVS is weaving together its numerous drugstores, pharmacy benefit manager Caremark and insurance company Aetna to try to drive more business. On Thursday, the company said it will add new health products, subscription models and home health care options. It said it can reduce costs and improve the health of people with chronic conditions like diabetes and congestive heart disease who have Aetna insurance and fill prescriptions at CVS pharmacies.

As part of its vision, CVS recently said that it will close about 900 stores over the next three years or roughly 9% of the retailer's total U.S. footprint. Going forward, it said stores will have one of three formats — including two formats that make health-care services more front and center, along with traditional stores.

Lynch said the company is "reimagining CVS locations as health-care destinations." She said one of the opportunities that it sees is in mental health by connecting more people to social workers or therapists and treating it as an important piece of wellness.

"Mental health is an unmet need and it is clearly one of the biggest collateral damages of the pandemic," she said.

CVS wants more people to come to its stores for primary care, such as routine checkups with a doctor or nurse practitioner, said Dr. Alan Lotvin, executive vice president of CVS Health and president of CVS Caremark.

He said the company wants the booking of a doctor appointment to be as quick and convenient as making a restaurant reservation on OpenTable. That means having longer hours at its clinics, so people can visit as early as 6 a.m., as late as 9 p.m., or on the weekends. It also means skipping over common annoyances, like filling out a clipboard of paperwork and trying to decode a doctor's advice that is written in medical jargon.

Lynch said its big ambitions to provide more primary care will require the company to strike partnerships or acquire or merge with another company.

Pandemic-related services could continue to lift sales at drugstores, too. This year, Covid tests and vaccines are expected to drive more than $3 billion in revenue. Chief Financial Officer Shawn Guertin said he had expected that to drop by 30% to 40% in 2022.

However, he said the evolving nature of the pandemic — and the emergence of the new variant, omicron — makes it harder to tell what may happen with levels of tests and vaccines.

"It's an area where we keep thinking it's going to fall off and it doesn't," he said at the investor day.

If Covid cases remain higher, that could mean more use of a new oral medication or higher hospitalizations, which could result in higher costs for CVS' health benefits business, he said.

Driving sales, resuming buybacks

The company laid out its forecast for this year and next year. It projected that adjusted earnings per share will be between $8.10 to $8.30 on total revenues of between $304 billion to $309 billion in fiscal 2022.

It boosted its forecast for this fiscal year, saying it expects adjusted earnings per share to be at least $8.00 on revenue of $290.3 billion or more. That's an increase from a previous forecast for adjusted earnings of $7.90 to $8.00 per share and revenue of $286.5 billion to $290.3 billion.

CVS said Thursday that it would also resume share buybacks and increase its dividend. It marked the first time that the company has done that since 2017, when it announced the acquisition of health insurance company Aetna. It said it will raise its annual dividend by 10%, from $2.00 to $2.20, effective with the next distribution on Feb. 1. It has approved a $10 billion share buyback program.

As of market close on Thursday, shares are up 43% this year. The company's market value is $128.41 billion.

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