If any health crisis has been in the news over the last few years, it has been the opioid crisis, and while it’s been somewhat pushed aside due to mounting Fentanyl deaths attributed in part to the issues at the border, the toll taken over that period was tremendous. The opioid epidemic, also referred to as the opioid crisis, was the rapid increase in the overuse, misuse/abuse, and overdose deaths attributed either in part or in whole to the class of drugs called opiates/opioids since the 1990s.
According to the Centers for Disease Control, the number of drug overdose deaths increased by more than 16% from 2020 to 2021. Over 75% of the nearly 107,000 drug overdose deaths in 2021 involved an opioid.
While the many deaths were horrific results of over-prescribing, poor judgment by physicians, and a push by big pharmaceutical companies, all of whom were punished severely, the nation’s big pharmacies were also tagged with big penalties.
Rite-Aid Corporation (OTC: RADCQ) has filed bankruptcy and now trades at $0.25, after years of steady declines in sales. It also faces more than 1,000 lawsuits accusing it of filling illegal prescriptions for painkillers.
Many across Wall Street think other big pharmacy chains could be wobbling under the same pressures. Here are 6 big reasons to avoid CVS Health Corporation (NYSE: CVS).
CVS faces a similar issue to Rite Aid
CVS agreed to pay a stunning $5 billion over the next 10 years to individual states and Native American tribes beginning this year. The massive payments each year are expected to be a huge strain on the company’s balance sheet.
Second quarter 2023 earnings crashed
The company posted second-quarter earnings results that were down a stunning 37% which included a massive $496 million in restructuring costs that were related to acquisition and streamlining.
Covid vaccine cash cow starting to disappear
Covid vaccinations and testing have plummeted since the height of the pandemic, and while Americans are being urged to have yet another booster, the response has been very low. Most feel that unless a virulent Covid variant emerges, consumer use will continue to decline.
CVS stopped selling tobacco in 2014 and it was costly
While most would agree that stopping the selling of cigarettes, cigars and smokeless tobacco is a solid idea for the general health, the reality is it has been very costly for CVS. While it makes sense as the company was redesigned to be a health organization, and smoking remains the country’s leading cause of preventable death, it chopped an estimated $2 billion a year in revenue from the balance sheet.
Massive lawsuits could be another huge drag on earnings
In September it was announced that a high-profile class-action lawsuit had been filed against vertically consolidated businesses CVS Health, Caremark, and Aetna to “recoup for independent pharmacies millions of dollars” in what lawyers are calling “wrongful back-end penalties for Medicare Part D prescriptions,” or direct and indirect remuneration (DIR) fees, according to a press release from the National Community Pharmacists Association (NCPA).
While it remains to be seen what the verdict and potential fines and penalties will be, it is another cloud over CVS and the industry about best practice failures.
Corporate debt is large and continues to grow
It was reported in the summer the company has $62.3 billion in debt an increase of 8 billion over last year. The company has liabilities of $79 billion due in 12 months, and $98 billion beyond 12 months. While CVS has $16.9 billion in cash and $29.5 billion in receivables, the liabilities outweigh the total of the cash and receivables by a whopping $130.6 billion.
While the deficit is likely manageable, at least for now, if creditors had to be paid off today, it would likely require a recapitalization of the company.
While Wall Street still is firmly behind the stock, as there are 14 Buy ratings, 3 Hold ratings, and no Sell ratings other issues cloud the picture. Pending lawsuits, a reasonably big debt load, and the fact that being structured as a healthcare organization versus strictly a retail outlet adds additional pressures, the challenges could grow in the coming years. It makes sense to be cautious if purchasing shares of the company and see how the third quarter earnings come in.
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