What Are CVS Health’s Key Sources of Revenue?

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CVS Health

CVS Health (NYSE:CVS) is the largest pharmacy services provider in the US comprising of the largest network of retail pharmacy stores nationwide along with pharmacy services and claims processing. The company’s pharmacy business, which makes revenues by sales of prescription drugs and provision of pharmacy related services, is expected to contribute $121 billion to CVS Health’s 2020 revenues, making up 47% of the company’s $257 billion in expected revenues for 2020. Its other businesses, Retail/LTC (Long Term Care) and Health Care Benefits are expected to generate $74 billion and $62 billion in revenues in 2020, accounting for 29% and 24% of total revenues, respectively.

CVS Health’s 2019 sales, in particular, will likely see a sharp jump of 30%, reflecting the impact of the Aetna acquisition in Q4 2018. The Aetna acquisition has provided the company access to the health insurance market, and the company accordingly has added a new business segment, Health Care Benefits, in its reporting. Below we discuss CVS Health’s business model, followed by sections that review past performance and fiscal 2020 expectations for the company’s revenue drivers. You can look at our interactive dashboard analysis ~ CVS Revenues: How Does CVS Health Make Money? ~for more details.

CVS Health Generates Its Revenue Primarily From Its Pharmacy Benefit Management Solutions. Its Largest Segment In Terms of Revenues Is Pharmacy Services, Which Accounted For Roughly 60% of Total Revenues In 2018

  • Revenue Contribution As of 2018:
    • Pharmacy Services ~ 60%
    • Retail/LTC ~ 37%
    • Health Care Benefits ~ 3%
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CVS Health’s Business Model

  • What Need Does It Serve?
    • CVS Health is the largest pharmacy services provider in the US comprising of the largest network of retail pharmacy stores nationwide along with pharmacy services such as mail-order pharmacy services, prescription plan management, and claims processing.
    • The company in Q4 2018 acquired Aetna, a health insurance company, for a combination of cash and stock in a $70 billion deal. Including the assumption of Aetna’s debt, the total value of the transaction was approximately $78 billion.
  • Who Pays To CVS Health?
    • Employers, insurance companies, unions, government employee groups, managed care organizations, and other sponsors of health benefit plans and individuals throughout the United States.
  • What Buyers Care About?
    • Network of retail stores
    • Convenient locations
    • Greater flexibility and choice for prescription filling
    • Controlling costs of pharmaceutical dispensing
    • Appropriate utilization of costly specialty drugs
  • Who Are CVS Health’s Competitors?
    • Walgreens
    • ICORE HealthCare
    • Medco Health Solutions, and
    • Rite-Aid, among others.

CVS Health’s Total Revenue Grew 10% Between 2016 And 2018, And It Could Grow Over 30% By 2020, Led By The Company’s Aetna Acquisition

  • CVS Health’s total revenue grew from $178 billion in 2016 to $195 billion in 2018.
  • This growth was largely led by its pharmacy services, which benefited from the growth in pharmacy network and specialty pharmacy volume.
  • However, as we look forward, the revenue growth rate could see a sharp jump in 2019, reflecting the impact of the Aetna acquisition in Q4 2018.

Revenue Will Likely See A Sharp Jump In 2019, Led By Health Care Benefits Segment

  • CVS Health’s Pharmacy Services, which includes pharmacy benefit management solutions, saw sales grow from $106 billion in 2014 to $116 billion in 2018, and it could grow to $121 billion by 2020, led by specialty medicines. In fact, the company has reported $1 billion in new business in the 2020 season, and it successfully renewed its relationship with the Federal Employees Health Benefits program through December 2021.
  • Retail/LTC segment, which includes the company’s retail store sales of prescription drugs, and consumer healthcare products, saw sales grow slightly from $72 billion in 2016 to $73 billion in 2018, and it will likely hover around the same mark in the near term, as the company has decided to close 75 retail stores in 2020, as they approach the end of their lease period.
  • Health Care Benefits & Other segment includes the company’s newly acquired health insurance business, and it will likely see sales north of $60 billion in 2020. The revenue for the nine month period ending September 2019 was $52 billion.
  • Note that the revenue below are adjusted for corporate and eliminations.

 

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