CVS Health Corporation's CVS growth in the third quarter of 2024 is backed by strong digital engagement and enhanced capabilities. Additionally, the company’s progress with the 2025 roadmap is encouraging. However, a dull macroeconomic scenario and fierce competition may restrict CVS Health’s growth potential.

In the past year, this Zacks Rank #3 (Hold) company’s shares have lost 42.6% compared with the industry’s 47.9% decline. The S&P 500 composite rose 27.8% during the same timeframe.

The leading retail pharmacy chain has a market capitalization of $55.42 billion. In the third quarter of 2024, CVS Health delivered an earnings surprise of 1.87%. The company has a historical EPS growth rate of 5.5% against the industry’s 3.7% decline. 

CVS’s Tailwinds

Rapid Digital Growth: CVS Health is continuously investing in emerging technology capabilities such as voice, artificial intelligence, and robotics to automate, reduce cost and improve the experience for its constituents. The company’s solid digital engagement and enhanced capabilities should strengthen its ability to drive seasonal flu and RFD immunization awareness and connect patients to the CVS locations for these important health services. 

More customers are using the CVS Health platform to schedule health services appointments, fill prescriptions and purchase wellness products. This is contributing to its business growth as well. CVS Health sees tremendous opportunities to expand customer engagement across the organization through its multi-payer capabilities and vast consumer reach.

2025 Roadmap Looks Impressive: CVS Health is optimistic regarding its path to 2025 and beyond, which involves strengthening its positioning in Medicare Advantage. Management is confident in the 2025 pricing. It expects 100 to 200 basis points of margin recovery in 2025 compared to its current baseline performance. Improved Star Ratings in 2025 might generate a $700 million tailwind, depending on membership retention levels. The rest of the gains in the company’s 2025 margin will be driven by pricing initiatives. 

Furthermore, Signify Health, a part of the company’s Health Services segment, continues to show impressive growth and is building momentum into 2025. CVS Health is progressing with its innovative pharmacy models and biosimilar strategy. The company delivered wins in both the Caremark and Aetna selling seasons.

CVS’ Headwinds

Poor Macroeconomic Condition: Adverse economic conditions in the United States and abroad are impacting CVS Health’s businesses, operating results and financial condition. The businesses are currently affected by various economic factors, like inflation and changes in consumer purchasing power, preferences or spending patterns. The challenging macroeconomic conditions are resulting in a significant escalation in the company’s costs and expenses.

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Competitive Landscape: Intense competition and tough industry conditions act as major impediments for CVS Health. Chief competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses. Competition is especially tough in the pharmacy segment as other retail businesses continue to add pharmacy departments and low-cost pharmacy options. Discount retailers, in particular, have made substantial inroads in gaining market share.

CVS Health’s Estimate Trend

The Zacks Consensus Estimate for 2024 earnings per share has moved 5.3% south to $5.31 in the past 30 days.

The Zacks Consensus Estimate for 2024 revenues is pegged at $371.96 billion, indicating a 4% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Haemonetics HAE, Penumbra PEN and Globus Medical GMED.

Haemonetics has an earnings yield of 5.02% compared with the industry’s 1.18%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 19.39%. HAE’s shares have risen 3.6% compared with the industry’s 19.9% growth in the past year.

HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Penumbra, carrying a Zacks Rank #2 at present, has an estimated 2024 earnings growth rate of 33.5% compared with the industry’s 15.9%. Shares of Penumbra have risen 3.2% compared with the industry’s 14.5% growth in the past year. PEN’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 10.54%.

Globus Medical, carrying a Zacks Rank #3 at present, has a long-term estimated growth rate of 14.1%. Shares of the company have rallied 81.8% compared with the industry’s 14.5% growth. GMED’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 17.65%.

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