The leaders of CVS Health Corp. are still scouring the market for a primary care platform to buy and help fuel their growth plans but said May 4 that companies they’re talking to aren’t yet in the same ballpark when it comes to the prices Rhode Island-based CVS is looking to pay.
CVS CFO Shawn Guertin late last year told analysts and investors that the company’s core growth scenario in primary care includes having a network of between 250 and 350 owned and/or enabled care centers by 2024. Starting down the path in 2022 toward that broad goal is still on the cards, he said this week on the heels of CVS’ first-quarter earnings report. But he added, “the valuation environment continues to present its own sets of challenges.”
“When we set out on this journey, some of these companies were valued at 7x to 8x revenue, right? […] And that probably wasn’t right, right?” he said. “But now some of them have regressed to maybe one or two and that may not be completely correct, either. […] It still remains challenging given sort of the memories of where some of these values were.”
CEO Karen Lynch said on a conference call that the CVS team is still evaluating “a broader range” of primary care players to add to its growing arsenal. That lineup already includes a virtual care that last year handled 10 million mental health visits and, Lynch said, will roll out new services in the coming month.
As for the size of a possible M&A play, Guertin said it most likely won’t be a blockbuster deal.
“We’re talking about a capability-based acquisition – at some size but not necessarily anything jumbo,” he said. “We have been very active in this space. We’ve evaluated a range of assets in and around the care delivery space. I will remind you most of these assets aren’t out for sale.”
For the first three months of 2022, CVS reported a net profit of $2.3 billion, up from $2.2 billion in early 2021, on revenues that rose 11 percent to $76.8 billion. Adjusted operating income, which excludes debt amortization and certain one-time items, rose 7 percent to nearly $4.5 billion. The company’s retail/long-term care segment led the way in terms of the bottom line, growing adjusted operating profits 15 percent to $1.6 billion; pharmacy services’ adjusted profits climbed 9 percent to about the same dollar figure while the company’s health care benefits group led by Aetna produced $1.75 billion in adjusted operating income, down slightly from the prior-year period.
Shares of CVS (Ticker: CVS) rose nearly 5 percent to more than $100 May 4. Year to date, they have fallen slightly.
