Shares of drug store and pharmacy benefits manager CVS Health (NYSE: CVS – $77.08) are advancing over 4.5% following third quarter sales and earnings that beat the Street consensus. Net income totaled $1.39 billion up from $1.29 billion and adjusted earnings per share was $1.73 compared to $1.50 last year and two cents better than estimates. Revenue totaled $47.3 billion, up 2.4% from last year as same-store sales rose 6.7% with pharmacy same-store sales up 8.7% – also ahead of forecasts of 7.6%. Revenues in the Retail/Long Term Care Segment increased 6.4% on a 9.2% increase in prescription volume. Front store same store sales increased 0.8% compared to the same quarter of the prior year thanks to continued strength in consumer health care and beauty care categories. CVS also said it generated $6.4 billion in cash flow from operations for the quarter and $4.9 billion in free cash flow.
CVS continues to expect full-year adjusted earnings of $6.98 to $7.08 vs. Street guidance of $7.04. CVS’s acquisition of Aetna is moving along as expected. CVS and Aetna entered into an agreement on Oct. 10 with the Department of Justice that allows the transaction to proceed as long as Aetna divests its standalone 2.2 million-member Medicare Part D prescription drug plans, which it subsequently sold to WellCare. This divestiture will be the last antitrust impediment to CVS’s acquisition of the company, which is expected to close by the end of the month.
CVS Health is a leader in an industry with healthy growth prospects and the Aetna acquisition sweetens the pie. Its strong diversified position and financial wherewithal should help produce solid risk-adjusted total returns for the foreseeable future. The shares are very reasonably valued at 10.5 times 2019 estimated earnings and the stock yields 2.7%.