Healthy Prospects

Most people know CVS Health (NYSE: CVS) for its network of retail pharmacies that features almost 9,700 locations, including some within Target stores. CVS is also known for its 1,100-plus in-store Minute Clinics. The main driver of its success, though, is CVS’ pharmacy benefits management (PBM) business. A PBM negotiates between payers and makers of drugs to bring prices down, taking a small chunk of the savings as its reward. CVS is one of the United States’ largest PBMs — and in this industry (as in many others), size confers essential negotiating leverage. A client retention rate around 97 percent shows that it’s also keeping its customers happy. Competition is strong between CVS and Walgreens Boots Alliance, which stole away two major customer accounts representing roughly 40 million prescriptions last year. CVS’ stock has slipped over the past year, and CEO Larry Merlo sees 2017 as “a rebuilding year,” aiming to “return to healthy levels of growth.” Both CVS and Walgreens have a major tailwind in the ongoing aging of America, which will only increase demand for its services. CVS Health is projected to see annual earnings growth in the double digits over the next five years. Add that to a reasonable valuation and a dividend that recently yielded 2.6 percent, and you’ve got an intriguing long-term portfolio candidate. (The Motley Fool has recommended CVS Health.)