Why we should buy tax exempt debt of CVS

CVS is currently the largest chain of pharmacy in US by number of locations in 2016 and in

terms of prescription sales. During the last year, it grossed $153 billion terms of overall sales and

analysts are expecting that it will surpass $181 billion mark this year. Keeping in view, the

revenue it has been earning, analysts have projected a double digit growth of the company this

year.

MARKET FACTS

 9600 is the number of the stores the company has been operating until 2016 and this is, by all

means, not an aggressive expansion but an organic one. This can be understood by the fact

that CVS along with its competitor Walgreen currently captures up to 50% of the drugstore

market across metro areas in United States. Among the market share it has alongside

Walgreen, 23.9% of the market area is just captured by CVS alone.

 In terms of competition, the only rival of CVS is Walgreens. This might be a concern for

CVS a while ago but not anymore because it is planning to acquire 1660 Target pharmacies

across US.

 During the year, there was an increase of 21.9% in storefront sales from the products that

were CVS Health branded. Following the sales of its existing products, CVS is planning to

launch new categories of products over time.

 In terms of customer loyalty, 97.3% of its PBM (Pharmacy benefit management) customers

were retained this year which demonstrates how much its services are appreciated by its

customers. The number of customers covered under PBM program stood at 80 million.
 In terms of specialty drugs business, it generated a huge amount of $40 billion which was up

by 32%.

 19 million people have signed up for the customer alert regarding appointments and

prescriptions because huge investments have been made to make customer experience better.

 A total of more than 1million people have signed up for the program the called ScriptSync.

Under this program, patients can receive multiple refills for other months as well at the spot

which has reduced number of trips to the store. This was an impressive result for a program

which was just started months ago.

FINANCIAL FACTS

 This year, dividend of CVS increased by 21%. The payout ratio of the company was 32%

which is a bit lower than its target of 35% and this might indicate that investors might get a

raise next year.

 $2.1 billion were spent by the company on repurchasing its own shares during the first

quarter. A total of 22.4 million shares were retired for an average price of $98.52 per share,

and management is planning to buy back another $1.8 billion worth by the end of this year.

This shows that the share count of company is declining way faster.

 A total of $5billion would be paid to customers in the form of dividends and buybacks. Still

the company’s cash balance is projected to grow this year as management has planned to

spend$5.3 billion in the form of total cash flows.

 17.5% to 19% is the total revenue growth CVS Health is projecting this year. Profit growth

might fluctuate a bit owing to acquisition-related costs and slightly lower margins but
 management is still saying that this year, the earnings would fall in the range of $5.73 to

$5.88. This shows a growth of at least 11% compared to the previous year.

 The revenue growth was forecasted at 16.37% in 2014 which slipped to 15.27% in 2015.

This decrease is insignificant because considering the sales trends this year, it might increase.