CVS Soars to New Highs

229E… NL63… OC43… HKU1…

These are the coronaviruses that are the most common. And they’re the ones we are in constant battle against.

Now, in no way should they be confused with the deadly coronavirus that causes COVID-19 (SARS-CoV-2).

But the reality is that each of us will contract one or more of the common coronaviruses in our lifetimes.

The war against viruses and disease is much larger than the fight against coronaviruses, though.

There are more than 200 viruses, including rhinoviruses, which cause the common cold. Then there are influenza A and B, plus each strain’s various subtypes, made up of clades and subclades.

Typically, these viruses trigger a scourge around the world annually. We know it as “cold and flu season.”

The average person will contract a cold two to four times per year.

These past couple of years have been exceptional, though. In fact, the 2020 flu season was one for the record books.

Not because the flu was rampant, but because it was virtually nonexistent.

And this created a very interesting opportunity for us.

Sidestepping a “Twindemic”

According to the Centers for Disease Control and Prevention, the hospitalization rate for the flu last year was 0.7 per 100,000 people – the lowest on record.

The number of new cases recorded in the U.S. was 99% lower than the historical average.

And there was only one pediatric flu death. That’s a dramatic decline from the 196 reported during the 2019 flu season.

Social distancing, persistent handwashing and mask-wearing not only worked to keep the spread of COVID-19 in check but also stamped out the spread of influenza.

The bright side is that this gave the country a much-needed reprieve from battling a “twindemic” – the COVID-19 outbreak combined with a strong flu season.

The downside was that it triggered headwinds for retail pharmacy operators. Shares of these companies were beaten down following abysmal sales figures during 2020’s nonexistent cold and flu season.

But, as we always do here, we spied opportunity in these pullbacks.

We stress focusing on the future, not the past. And we knew a return to normal meant COVID-19 tests and vaccinations, as well as standard cold and flu remedies.

To me, there were few pharmacy operators more attractive than CVS Health Corp. (NYSE: CVS). It operates 9,900 retail locations, as well as 1,100 MinuteClinic locations.

It’s the largest pharmacy chain in the U.S. For perspective, there are roughly 88,000 pharmacies across the country, and CVS controls more than 11% of them.

And this week, we enjoyed the upside of our foresight.

A $73 Billion Blowout Quarter

CVS reported that third quarter revenue jumped 10% to $73.8 billion as earnings per share grew to $1.97. This blew past the $1.78 per share that Wall Street was expecting.

Some of the biggest drivers were COVID-19 vaccinations, diagnostic testing and over-the-counter test kits. These sales accounted for 40% of the increase that the company saw in its retail revenue.

In fact, CVS administered more than 11 million COVID-19 vaccines and more than 8 million COVID-19 tests during the quarter. And with employers across the country continuing to mandate vaccines, the company is reaping the rewards.

Our shares of CVS soared to new 52-week highs on the beat!

But I think our run here is far from over. I’m looking for shares to continue their momentum and eventually top the all-time high above $113 set back in 2015.

You see, CVS also raised full-year guidance to $7.95 per share, up from $7.75.

And it announced that the company will be offering the Pfizer-BioNTech COVID-19 vaccine for children starting this weekend. That’s an entirely new revenue stream coming online, just as we dive headfirst into the cold and flu season.

Now, this year’s cold and flu season might not be a total return to normal. But that’s OK.

Last year, CVS didn’t have the COVID-19 vaccine or test to offset the steep decline in over-the-counter remedy sales. This year it does, on top of a very favorable year-over-year comparison.

Our CVS shares are at their highest level since August 2016. And I believe that with the tailwinds the company’s business has, new all-time highs are on the horizon.

Here’s to high returns,

Matthew