Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

CVS Health Profits from the Centralization of American Healthcare

The centralization of American healthcare is continuing at CVS Health (NYSE: CVS). The drugstore and prescription-plan operator’s revenues grew to $172.7 billion at the end of third quarter 2016.

What’s more interesting; and undoubtedly bothersome to some people, is that CVS’s revenues grew by nearly six billion ($5.97 billion to be exact) during third quarter. CVS reported revenues of $166.73 billion in June 2016 and $172.7 billion in September.

Even more astonishing is the yearly growth of CVS’s revenues. Between September 2015 and September 2016 CVS’s revenue grew by $23.50 billion. The health giant reported revenues of $149.2 billion in September 2015 and $172.7 billion in September 2016.

The Consolidation of American Healthcare

The growth of CVS Health seems to verify one of my pet theories: the US healthcare system is steadily centralizing and consolidating. Companies like CVS are laying the groundwork for a centralized national single-payer healthcare system whether we want one or not.

Those do not believe me should take a look at these numbers. As of November 20, 2016 CVS Health’s operations included:

  • More than 9,600 pharmacies.


  • 1,100 minute clinics that saw more than 31 million patients.


  • More than 30,000 pharmacists on staff.


  • A retail network that serviced more than 60,000 pharmacies.


  • Eye Care plans with 70 million members.


  • A network that filled 1.9 billion prescriptions.


  • Pharmacy Benefit Manager (PBM) plans that had more than 75 million members.

If these numbers are correct CVS is operating a healthcare system that is larger than Britain’s National Health system. The National Health theoretically serves every British subject; and the population of the United Kingdom was roughly 64 million in 2015.

Guess What Americans National Single-Payer Healthcare is Almost Here

The groundwork for a national healthcare system in the United States is being laid by private industry. All that we will require next is for government to step in and take over from private industry or start paying for it.

Actually that’s already going on and driving CVS’s profits. Around 53.8 million Americans were receiving Medicare in 2015, and another 70 million or one in five Americans were receiving Medicaid or S-Chip (health insurance for poor children) in 2015.


We have a centralized and largely government financed health insurance system in the United States. All that will be required to move to national single payer care is for Congress to increase the Center for Medicare and Medicaid’s decision making powers. Strangely enough that situation will be very good for CVS Health and its investors.

CVS Health is Making a lot of Money

Under the present status quo, CVS is making a lot of money. Healthcare in the United States is now a cash cow for companies like CVS.

Some numbers that prove this argument at CVS Health include:

  • $5.108 billion in net income on September 30, 2016.


  • $3.42 billion in free cash flow on the same day.


  • A profit margin of 3.45% for the third quarter.


  • Cash and short-term investments of $2.263 billion on September 30, 2016.


  • Assets of $94.16 billion.


  • $11.52 billion in cash from operations for third quarter 2016.


All this proves that CVS Health is a cash rich company with a lot of float and a value investment. CVS is not a sexy company but it sells a product almost everybody needs healthcare and makes a lot of money doing so.

More importantly, government is willing to pay for that product if average people cannot. That makes CVS’s business close to foolproof and guaranteed because no member of Congress would vote to get rid of Medicare.

Even President-elect Trump supports Medicare and admits that Medicaid expansion is a good idea. Given Trump’s remarks on CBS’s 60 Minutes on November 13, 2016, it sounds as if he would sign off on a national health insurance program or Medicaid and Medicare expansion. That would put even profit in CVS’s bottom line and make it an even better investment.

CVS Health is a Great Investment

That’s saying a lot of because CVS Health is already a pretty good investment. It rewarded shareholders with a return on equity of 14.1% and an earnings per share number of 4.67 at the end of third quarter.

Those investors also received a dividend yield of 2.22% on November 30, 2016, and a dividend of 42.5¢ on October 20, 2016. That dividend increased by 7.5¢ between 2015 and 2016 rising from 35¢ to 42.5¢. It rose by 7.5¢ the year before rising from 27.5¢ in 2014 to 35¢ in 2015, and from 22.5¢ to 27.5¢ in 2014.

P5090008 copy

CVS’s dividend has grown by 20¢ a share over the last three years making it a great dividend and income stock. Not only does CVS have a really good business that generates a lot of cash it’s also a great dividend and income investment.

If you’re looking for an income investment that’s poised for growth, consider adding CVS to your portfolio. With a President and congress dedicated to reforming healthcare and 76.4 million Baby Boomers heading to the Medicare rolls over the next decade, CVS’s business and profits will boom.

The future looks bright for CVS because the consolidation of healthcare in the United States will accelerate in the years ahead. Also accelerating will be CVS’s profits and revenues and the payout to its investors. Persons that want to cash in on the growth of American healthcare should consider adding CVS to their portfolios now.