CVS Health will face a new challenge in the year ahead: proving to investors that it can drive growth and retain customers, even as demand for Covid vaccines and tests declines.
Shares fell nearly 5% early Wednesday after the healthcare company beat expectations for fiscal fourth-quarter earnings but declined to raise its outlook for 2022.
Pandemic-related services have boosted traffic and sales for the drugstore chain over the past year. CVS has administered over 32 million Covid tests and over 59 million Covid vaccines. Its vaccination volume peaked in the fourth quarter — with more than 20 million shots — as Americans geared up for holiday gatherings and the omicron variant spread across the country, encouraging more people to get vaccinated. Vaccination mandates from employers and the authorization of vaccines for children aged 5 to 11 have also increased demand in the fall and winter.
This has also translated into increased sales and new buyers. Some customers tossed items into their shopping carts, had prescriptions filled or signed up for the pharmacy’s loyalty program as they hit the shops for a shot.
However, Covid cases have dropped significantly across the country. The seven-day average of daily new cases in the United States is 234,941, a 46% drop from a week ago, according to data compiled by Johns Hopkins University. This drop is pushing some states, including New York, to lift indoor mask mandates.
As the tailwinds to the pandemic fade, CVS’s ambitions to become more of a healthcare destination will be front and center. The company acquired health insurer Aetna in 2018 and owns pharmaceutical benefits manager Caremark. It is revising its store footprint, closing about 900 locations and adding more medical services to others. And he plans to open primary care clinics where clients can see a doctor.
Chief Executive Karen Lynch said the global health crisis has strengthened loyalty and increased usage of the company’s website and app. Visits to the CVS website grew to more than 2 billion in 2021, up nearly 55% from the previous year. She said CVS now serves 40 million customers digitally, an increase of about 10% over the past six months.
“Our work to test and vaccinate America against Covid is a powerful example of the relationship we’re building with consumers, leading to new customers seeking a range of other health services at CVS Health,” he said. she said during an earnings call on Wednesday.
Brian Tanquilut, an analyst at Jefferies, said the company has a larger audience for these health services — if it can keep customers engaged.
“There’s no denying ‘Hey, we have an opportunity here where we have people coming into the stores,'” he said. “You’ve already hooked them, so you have to find a way to make them stay.”
He said sales would likely slow before this healthcare services strategy takes effect. However, he said, the company appears to have a sense of urgency as it seeks primary care companies to acquire.
His price target for CVS stock is $120, about 13% above its current price.
During an earnings call on Wednesday, Chief Financial Officer Shawn Guertin said CVS’s forecast for 2022 assumes there won’t be a fourth Covid injection and another wave of cases. He said the company expects vaccine volume to decline by about 70% to 80% and in-store testing to decline by 40% to 50% from 2021.
One exception will be the modest growth in sales of home Covid tests, he said. CVS has sold more than 22 million over-the-counter tests, including about 70% of those purchased in the fourth quarter.
He said the boom in booster shots came sooner than expected. This resulted in more sales in the fourth quarter of 2021 rather than the first quarter of 2022, he said.
He noted, however, that the pandemic was not entirely positive for the company. It also led to higher medical costs for its health benefits business, which offset some of the increased sales.
Ashtyn Evans, an analyst at Edward Jones, said the projected drop in vaccines and testing by CVS may be too conservative. Even if accurate, she said CVS would still have long-term pandemic benefits.
“Now they have customers who are more used to walking into a CVS store, interacting with CVS through their app,” she said. “They are coming out of the pandemic with a higher customer base than when they started.”