CVS Health will face a new challenge in the coming year: proving to investors it can drive growth and retain customers, even as demand for Covid vaccines and testing fades.
Shares were down more than 5% midday Wednesday, after the health-care company beat expectations for fiscal fourth-quarter earnings, but declined to raise its 2022 outlook.
Pandemic-related services have driven foot traffic and sales for the pharmacy chain over the past year. CVS has administered more than 32 million Covid tests and more than 59 million Covid vaccines. Its vaccination volume peaked in the fourth quarter — with more than 20 million shots — as Americans prepared for holiday gatherings and the omicron variant spread across the country, encouraging more people to get booster shots. Employers' vaccine mandates and the authorization of vaccines for kids between ages 5 and 11 also lifted demand in the fall and winter.
That has translated to higher sales and new shoppers, too. Some customers tossed items in their baskets, got prescriptions filled or signed up for the drugstore's loyalty program as they went to stores for a shot.
However, Covid cases have fallen significantly across the country. The seven-day average of daily new cases in the U.S. is 234,941, a 46% drop from a week ago, according to data compiled by Johns Hopkins University. That decline is causing some states, including New York, to lift indoor mask mandates.
As pandemic tailwinds wind down, CVS will have to show it can deliver on ambitions to become more of a health-care destination. The company acquired health insurer Aetna in 2018 and owns pharmacy benefits manager Caremark. It is overhauling its store footprint, closing about 900 locations and adding more medical services to others. And it plans to open primary care clinics where customers can visit a doctor.
Chief Executive Karen Lynch said the global health crisis deepened loyalty and increased use of the company's website and app. Visits to CVS' website grew to more than 2 billion in 2021, up nearly 55% over the prior 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 for Covid is a powerful example of the relationship we're building with consumers, which leads to new customers seeking a range of other health services at CVS Health," she said on a Wednesday earnings call.
Brian Tanquilut, an analyst for Jefferies, said the company has a larger audience for those health services — if it can keep customers engaged.
"There's no denying 'Hey, we have an opportunity here where we have people coming to the stores'" he said. "You've already hooked them, so you have to find a way to make them stay."
He said sales will likely decelerate before that health-care services strategy kicks in. However, he said, the company appears to have a sense of urgency as it looks for primary-care companies to acquire.
His price target for CVS stock is $120, about 13% above where it is currently trading.
On a Wednesday earnings call, Chief Financial Officer Shawn Guertin said CVS' 2022 forecast assumes there won't be a fourth Covid shot and another wave of cases. He said the company expects vaccine volume to decline by about 70% to 80% and the amount of in-store testing to fall by 40% to 50% compared with 2021.
One exception will be modest growth in sales of at-home Covid tests, he said. CVS has sold more than 22 million over-the-counter tests, with about 70% of those purchased in the fourth quarter.
He said the boom in booster shots happened earlier than expected. That pulled more sales into the fourth quarter of 2021 rather than the first quarter of 2022, he said.
He noted that the pandemic wasn't entirely positive for the company, though. It also led to higher medical costs for its health benefits business, which offset some of the increased sales.
Ashtyn Evans, an analyst for Edward Jones, said CVS' anticipated drop-off in vaccines and testing may be too conservative. Even if it's accurate, she said, CVS will still get long-term pandemic benefits.
"Now, they have customers who are more used to going into a CVS store, interacting with CVS via their app," she said. "They are exiting the pandemic with a higher customer base than when they started."
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CVS faces its next challenge: Growing sales as demand for Covid vaccines fade - CNBC
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