Ask the Rational Investor: CVS Health a cheap option


Ryan T. Fulmer

Ryan T. Fulmer

On almost every street corner, it seems you can find either a CVS or Walgreens. 

The convenience of close-to-home pharmacy pickups can lead to the purchase of premium-priced milk and other items while you are there. Over time, CVS and Walgreens’ ability to maintain profitable store growth slowed, as the number of locations grew and pharmacy became more competitive with mail-order options. 

Sluggish growth and profitability weighed on the industry and spurred a series of acquisitions and mergers for CVS. The latest merger, completed in 2018, was with Aetna health insurance. The combined companies use big data and the convenience of CVS’ locations to offer better solutions for patients and hopefully more profitable health insurance. 

Perhaps you have noticed the CVS Minute Clinics, which offer more convenient healthcare options for minor issues, or the HealthHUBS. Since the merger, there have been more renovations and roll-outs of these areas. 

To complete the merger, the companies used debt, and lots of it.

As the two companies increased their efficiency and added additional revenue from new products and services, they projected fast deleveraging of their balance sheet. Improved financial performance and fewer interest payments have started showing up in earnings growth. 



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