A Prescription for Profit

Shares of CVS Health (NYSE: CVS) have had a tough year, dropping in large part due to fears about Amazon’s potential entry into the pharmacy business. Bears worry that Amazon will leverage its access to big data and its vast online retail network to essentially crush CVS Health’s all-important pharmacy services segment, which generated a whopping $33.2 billion in revenue during the second quarter of this year. But this fear is almost certainly overblown. CVS Health has an entrenched competitive position that won’t be easily overcome by any would-be competitor — even Amazon. Its latest quarter featured pharmacy prescription volume at stores open more than a year jumping 9.5 percent over the prior-year period, helping drive overall revenue up 5.7 percent. Contributing factors include continued success for CVS Health’s patient care programs, alliances with health plans and other pharmacy benefit managers, inclusion in more Medicare Part D networks and higher brand drug prices. Many investors also like the same-day drug delivery service that the company is rolling out in many cities and have high hopes for its planned merger with Aetna. CVS Health’s shares have recently been trading at attractive levels, with a forward-looking price-to-earnings (P/E) ratio near 10. The stock also sports a dividend that recently yielded 2.6 percent. (The Motley Fool has recommended CVS Health.)