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It has been a tough time recently for dividend-paying retail pharmacy stocks. CVS Health (NYSE:CVS) reported earnings on Aug. seven and cut its profit guidance. Second-quarter sales of $91.23 billion missed expectations, and adjusted EPS of $1.83 decreased from $2.21 the previous year. Part of the concern over CVS Health is the focus on health care as a growing part of the business. As part of the earnings results, CEO Karen Lynch announced she was taking over the Health Care Benefits section of the business directly.
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She recently spoke with Jim Cramer on CNBC’s Mad Money to discuss her plans for the future. The part of the business that most people know CVS Health for, the retail pharmacy, seems to be performing well. Same-store pharmacy sales were up by 9%, and same-store prescription volumes increased by 6%. Lynch highlighted the strength of that business, telling Cramer, "Many of our businesses are performing well; retail and pharmacy are performing well, with the best market share we've ever had."
The weakness in the Aetna part of the business prompted Lynch to decide to make changes to the Health Care Benefits business. On the earnings call, Lynch said the financial performance was not meeting her expectations. Brian Kane, the former Aetna President, is leaving the company, and Katerina Guerraz, who has been with Aetna for 20 years, will be the chief operating officer of the segment. Lynch told Cramer she would focus on the financial execution of that business.
Cramer leaned in on the strength of the retail business, noting that while CVS Health has closed some stores, people do seem to be using more of CVS Health's medical services, including visiting pharmacies for shots. CVS Health lowered its 2024 adjusted EPS guidance to a range of $6.40 to $6.65, and Cramer questioned if, once the health care benefits portion of the business gets going again, the company could hit an $8 or more earnings target. Lynch said she sees momentum in the business and that "we are pleased where we think 2025 will land."
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The Future Of Bricks And Mortar
Is Amazon a threat to CVS Health's brick-and-mortar business? Cramer questioned the potential competition from the e-commerce giant, but Lynch stated that being in the community is important for pharmacy and immunizations. The company is changing some of the formats of its stores to bring in more Oak Tree health services.
The company is also making changes to how it handles self-checkout. While some theft is still being attributed to self-checkout, Lynch mentioned a new system that will allow loyal customers to access some of the items locked up due to theft concerns by using their phones and an app to access QR codes and open cabinets.
CVS Health's stock is down nearly 23% as of this writing. The company has an annual payout of $2.66 and a current dividend yield of 4.6%. It has paid a quarterly dividend since 2012. Analysts rate CVS Health as a consensus buy, although several analysts have recently lowered their price targets.
CVS Health’s future success hinges on the company's ability to truly integrate all of its businesses. Cramer put his faith behind Lynch, saying, "if anybody can do it, it will be you."
For investors, the next quarter will be one to watch to see if Lynch is able to execute on shoring up the Health Care Benefits portion of the business by cutting costs and delivering on profits.
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This article Jim Cramer Asks CVS Health CEO If The Business Can Turn Itself Around originally appeared on Benzinga.com