We recently compiled a list of the 13 Best Pharma Dividend Stocks To Buy In 2024. In this article, we are going to take a look at where CVS Health Corporation (NYSE:CVS) stands against the other pharma dividend stocks.
The pharmaceutical industry in 2024 faced a relatively quiet year, with deal volumes similar to 2023 but lower deal values, reflecting a shift toward smaller, more strategic transactions. Despite challenges such as patent expirations and market uncertainty, innovation remains strong, and there is a better investment environment for biotech. Lower interest rates have also eased capital costs, contributing to increased mergers and acquisitions activity. Biotech IPOs and venture capital investments are seeing a slight recovery, though investment is more concentrated in established companies. However, major pharmaceutical companies face a $300 billion growth gap due to patent expirations, making dealmaking crucial for future growth.
Looking ahead to 2025, EY believes that the pharmaceutical sector is expected to see more deal activity, especially if interest rates remain low. There may be a rise in larger acquisitions to address growth gaps, although smaller, strategic deals are likely to persist. Politically, the US policy environment is shifting with potential impacts on business, including lower corporate taxes and deregulation, but also the possibility of higher tariffs and continued drug pricing reforms. Changes in immigration and leadership within health agencies could also affect the pharmaceutical and biotech industries, with new appointees potentially disrupting the regulatory landscape.
As executives prepare for 2025, drug pricing and access remain their top concerns, according to a Deloitte survey. The survey highlighted that primary concerns include competition from generic drugs and biosimilars and the looming patent cliff, with over $300 billion in sales at risk due to expiring patents by 2030. This has executives expecting a surge in mergers and acquisitions in 2025.
Innovation remains at the forefront as companies look to fill gaps left by expiring patents. However, competition in profitable areas like oncology and immunology is fierce, leading to price pressures even before generics or biosimilars hit the market. On the flip side, the success of GLP-1 receptor agonists is sparking renewed interest in general medicines, with companies racing to tap into the $200 billion market. Additionally, about 20% of companies are adjusting their portfolios to focus on high-potential candidates and better meet market demands. Advanced therapies like cell and gene therapies are also gaining attention, with a shift away from more traditional drugs.
In addition to the competitive landscape, life sciences companies are also keeping a close eye on regulatory changes. In the United States, concerns about the Inflation Reduction Act are growing, while in Europe, shifts in clinical trial regulations could add complexity. As a result, life sciences companies are preparing for a year of both innovation-driven growth and regulatory challenges.
Our Methodology
In this article, we reviewed Insider Monkey’s Q3 2024 database to identify pharmaceutical dividend stocks that hedge funds favored the most. The companies listed below are ranked in ascending order based on the number of hedge fund holders in each firm.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here)
A row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.
CVS Health Corporation (NYSE:CVS)
Dividend Yield as of December 28: 6.00%
Number of Hedge Fund Holders: 63
CVS Health Corporation (NYSE:CVS) offers a range of health solutions in the U.S. through three segments: Health Care Benefits, Health Services, and Pharmacy & Consumer Wellness. It provides health insurance products, pharmacy benefit management services, and sells prescription and over-the-counter medications. The company also offers health and beauty products, pharmacy consulting, and services to care facilities.
CVS Health Corporation (NYSE:CVS), once seen as a potential US healthcare giant, has faced challenges despite its ambitious expansion. After acquiring Caremark, Aetna, Signify Health, and Oak Street Health, the company aimed to create a healthcare one-stop shop. However, its strategy has faltered, leading to a reduced earnings outlook and a market value of just $80bn, lower than its acquisition costs. Its net debt has surged to $50bn. The company also faces lawsuits over inflated insulin prices and its legacy drugstore business is declining due to competition from Amazon and Walmart. Despite these issues, CVS’s retail arm remains more resilient than some competitors.
CVS Health Corporation (NYSE:CVS)’s Q3 2024 revenues reached $95.4 billion, a 6% year-over-year increase driven by growth in its healthcare benefits and pharmacy segments. Adjusted operating income was $2.5 billion, with adjusted EPS at $1.09, while cash flow from operations stood at $7.2 billion year-to-date, impacted by CMS receipt timing and increased utilization costs. Medical membership grew to 27.1 million, though rising costs and utilization pressures in Medicare and individual exchanges negatively affected performance. Medicaid also faced higher costs due to redeterminations, and commercial business growth is expected to slow in 2025. On the positive side, the pharmacy and consumer wellness segment achieved $32.4 billion in revenue (up 12%), with a 15% increase in adjusted operating income driven by prescription volume and improved drug purchasing.
CVS also returned $837 million to shareholders via dividends during the quarter and ended with $1.2 billion in cash. Its leverage ratio was 4.6x, exceeding the long-term target, but the company remains committed to maintaining investment-grade ratings and aims to reduce leverage through margin recovery in the Aetna business.
Among the 63 hedge funds bullish on CVS Health Corporation (NYSE:CVS) in Q3, Pzena Investment Management held the largest stake, valued at approximately $826 million.
Overall CVS ranks 9th on our list of the best pharma dividend stocks to buy in 2024. While we acknowledge the potential of CVS as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.