A quick trip back to CVS because they're headed toward primary care.

12/04/2021
Company(exchange: ticker)

Back 12/28/2018 I reviewed CVS.  Where I said: 

CVS is making a go of it. . . [after the] Aetna deal CVS got an insurer, its previous acquisition of Caremark gave it a drug plan manager, all to add to its drug stores and what I presume are cheap walk-in clinics. . . I don't actually believe CVS will see much increase in total services rendered with it's current infrastructure, all gains in the next few years from the business itself will likely be from the verticle integration while the appreciation of the stock price will come from a change in market sentiment about the future of businesses in CVS's position.

CVS isn't saying it's trying to do primary care but that's the sort of vertical integration I'd want to see. There it would have the means to cut costs.  As healthcare costs continue to rise low-cost providers are likely to win . . . At a price under 64, and preferably toward $61, there's value in a trade here with a re-eval and likely sale as the share price approaches $80. This is supported by insider's own historic approach and the trend in volatility, however, if the market doesn't bounce back in the first quarter and instead drops another 10+% that's going to be a problem.

CVS is not worth investing in, but priced around $61 looks like it has enough upside gain for the risk as a short-term trade with a sale after it turns to the median.

In the interim CVS has increased in price by 47.6% and the S&P500 has increased by 93.78%, so CVS was not worth investing in then nor did CVS outpace the S&P500's price appreciation at any time during that period (given the start date) though it was more volatile. And as of Friday, there was a 6% off sale on its stock.

Price at write-up $90.87  (-5.68%, 4.38%, 25.3%)

Indexes (30, 180, 365 day)
VIX: 30.67 (15.44, 17.48, 21.17)
TED: 0.12 (0.09, 0.11, 0.15)
S&P500:  4538.43 (-2.62%, 8.24%, 23.77%)
Fed: 0.08 (0.08, 0.08, 0.09)
Reported Inflation rate: 4.8% (2020 1.2%)
Actual inflation rate: 6.2% (2020 1.4%)

Valuation Ratios

Price/Earnings (TTM)	15.71x
Price/Sales (TTM)	0.33x
Earnings per share	5.73
Price/Book (MRQ)	1.29x
Price/Cash Flow (TTM)	5.66x
Held by institutions	75.1%
Short interest	1.12%
Dividend	2.22%
ROIC	4.88%
Gross/Net Margin	18.25%/2.68%
MarketCap	$120.0B
Beta	0.8

Target: $84-104

Not much to talk about, just some updates.

From the q3 2021 earnings call:

Karen Lynch-- President and CEO:

We will continue to drive higher engagement with customers as we evolve the format of select CVS locations, creating community health destinations, and shifting into three distinct models: sites dedicated to offering primary care services, an enhanced version of health hubs with products and services designed for everyday health and wellness needs. Our traditional CVS Pharmacy store model that provides prescription services and health and wellness and other convenient retail offerings. . .

Earlier this year, CVS Health launched the first national Virtual Primary Care program. This market-leading solution offers a national network of physicians virtually and access to convenient face-to-face care in our MinuteClinic locations when needed, often with 0 co-pay. . .  We have now 7.5 million people that have this 0 co-pay or low-cost co-pay. . .we really believe that we need to kind of push into the primary care, so we can influence the overall cost of care. And by doing that, we think that we can have better engagement help customers better navigate and obviously have higher quality, lower cost of care. And so that's the intent here of really pushing into primary care. And we expect to see continued evolution of our plan designs.  If you think about our overall care strategy, it's virtual care, it's in the community and it's in the home. If you look at what we did this year with our virtual primary care offering, clearly, we were able to be in the market early.

 My Thoughts

  CVS has successfully commoditized many aspects of healthcare and it will continue to do so.  It will likely become an important institution at the lower end of healthcare and could indeed revolutionize basic and bargain healthcare needs in the US, conceivably pushing out many primary care sites such as doctors' offices and general practice clinics (leaving only specialty clinics).  It might even be an important hedge in your portfolio, but the S&P500 will probably always outperform it.

But it's nicely valued and there's a chance that the market will see the possibly transformative value of what CVS is doing and rush into positions to a sufficient and rapid degree that will cause CVS to be significantly overvalued like much of the rest of the market.  That would probably be a nice time to sell a secret stash of CVS shares.

Risks

1) The S&P500 will continue to outperform CVS unless the market falls in love with Primary care CVS for a time, a distinct possibility.

2) The US institutes Medicare for all AND public primary care facilities.

Conclusion
No significant position for me, though I could see a purpose to holding a 0.1%-0.25% holding as a hedge or up to 1% of a consumer healthcare basket.  If I were to pick it up I'd try to do it at around $84 if it continues to drop and sell it when the PE is 45x.

Due Diligence - Walgreens.  Alternative investments in Biotech, health insurance, retail, pharmaceuticals, pharmacies, etc