CVS

Amazon Casts a Large Shadow Over the Pharmacy Industry

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Image Source: Mike Mozart It is our belief the food retailing industry is in the midst of widespread disruption with Amazon’s attempt to break into the supermarket game with its audacious purchase of Whole Foods. The Whole Foods acquisition is not likely to be an isolated one-off event; instead, it may be a harbinger of Amazon’s ambition to break into new markets, thus expanding its overall percentage of retail sales. We update our views on Amazon and how the company may eventually impact newsletter portfolio holding CVS Health. By Alexander J. Poulos Emulating the Costco Model Amazon’s (AMZN) purchase of Whole Foods (WFM) may be the initial step towards emulating the uber-successful Costco (COST) model where the bulk of profits … Read more

Target, Kroger Launch Counterattack on Amazon-Whole Foods; Industry Earnings to Shrink

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Image Source: Valuentum The pricing war has begun, but it may take years before we see the final effects. Only the strongest may come out ahead, and only those already focusing on giving customers the very best value proposition at the lowest prices may retain share. By Brian Nelson, CFA The grocery store business is now on a path of significant change in the wake of news that Amazon (AMZN) would acquire upscale organic grocer Whole Foods (WFM). The online retailing giant has wasted little time in resetting the product pricing environment at Whole Foods, and we expect that other grocers will have to follow. The group had already been on high alert given recent language from Kroger (KR), suggesting … Read more

Let’s Talk Business Analysis

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Valuentum’s Brian Nelson explains the benefits of combining both economic moat and economic castle analysis in business analysis. An excerpt from part II of Valuentum’s four-part investment education workshop. If you cannot see the video, please view the transcript below or select the link here. If you would like to purchase Valuentum’s investment education workshop, please visit the page here. Brian Nelson, CFA: “In business I look for economic castles, protected by unbreachable moats… (quoting Warren Buffett).” If you take out some of the prepositions, Warren Buffett looks for economic castles. So what we do is we provide the analysis associated with the Economic Castle rating. The Economic Castle rating is based on the academic framework that suggests that economic profit … Read more

CVS Health Still Stuck in Neutral

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CVS Health continues to perform as expected in the current lower reimbursement environment. We remain enthused with the copious amount of free cash flow that the enterprise produces, which has allowed management to continue its shareholder-friendly ways. We remain vigilant for signs of a key inflection point, however, and a catalyst may exist in the results of the current PBM selling season. By Alexander J. Poulos Overview CVS Health (CVS) operates a hybrid pharmacy model–it has melded together a ubiquitous pharmacy chain with a world-class Pharmaceutical Benefit Management (PBM) business. The hybrid model directly contrasts with the model operated by its primary rival Walgreens (WBA), which maintains a focus on pharmacy retail operations. The pharmacy retail field continues to consolidate … Read more

North Korea and the Bomb

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Tensions between the United States and North Korea have heightened, and we may look to August 2017 as the dawn of yet another Cold War. The news has little impact on our thesis, however. Stocks generally remain overvalued, and some of them considerably. Let’s cover a few stocks in the news and reiterate our generally positive stance on defense contractors, two of our favorites recently highlighted in the Nelson Exclusive publication. Learn more about the Nelson Exclusive here. “North Korea best not make any more threats to the United States,” Trump said, arms crossed, from his golf resort in Bedminster, New Jersey, on Tuesday. “They will be met with fire and fury like the world has never seen.” – CNN, … Read more

Generic Drug Price Deflation Continues to Weigh on Shares of Teva

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Shares of former Best Ideas Newsletter portfolio idea Teva Pharmaceuticals have come under renewed selling pressure after reporting weak quarterly results due largely to deflationary price pressures felt in the generic drug division. Teva has been relatively powerless in stopping the trend. We had removed the shares from the Best Ideas Newsletter portfolio well before the last leg down, and the Dividend Cushion ratio warned of tremendous risk to the sustainability of the dividend far in advance. By Alexander J. Poulos and Kris Rosemann Generic Drug Deflation Teva Pharmaceuticals (TEVA) maintains its position as one of the world’s largest manufacturer of generic medications, but the marketplace for a generic drug differs from the market dynamics of the branded space. We view … Read more

Walgreens Builds Out Its Network

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Image Source: Mike Mozart Walgreens continues its quest to build out its network of pharmacies. The goal is to maintain the largest network in the US, which would make exclusion from a payer’s network very difficult. Let’s review the recently-revised terms of the deal to acquire a portion of Rite Aid, the third-largest pharmacy chain in the US. By Alexander J. Poulos The Quest to Expand the Network Walgreens Boots Alliance (WBA), under the very capable leadership of Stefano Pessina, is attempting to transform into a global pharmacy-led health and wellbeing provider. The genesis of the idea was initiated with the combination of Boots Alliance, a predominately UK-based pharmacy chain with Walgreens. Upon the consummation of the deal in 2014, … Read more

Random Musings: Retail, REITs, BlackBerry, and More

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Image shown: Best Buy’s resiliency in the face of competition from Amazon. Let’s cover some recent news. By Brian Nelson, CFA The markets have been relatively flattish the past week or so, but that may not mean much. They could still be digesting some of the big gains thus far in 2017 before potentially staging their next move. At the close June 26, the SPDR S&P 500 Trust ETF (SPY), a proxy for the S&P 500 stood at $243.29. For some reason, I felt it important to make note of this level, as if it were an important one. Things have been very quiet for a long time now, and I get the feeling that an inflection point may be … Read more

Best Ideas, Dividend Growth Newsletter Alerts and More

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Image Shown: The stock price performance of Boeing. Let’s take a look at recent news from newsletter portfolio holdings. We’re also parting with a “trade” we never should have made in the first place, and we’re letting go of one of our favorite restaurants in light of deteriorating technicals. This and more… By Brian Nelson, CFA Aside from predicting the ongoing inflation of the current equity market bubble in the US so far in 2017, we also thought crude oil prices (USO) would continue their recovery. Unfortunately, this hasn’t exactly worked out, and US crude oil prices have now entered a “bear market,” now falling below $43 per barrel. Are we saying that we know where crude oil prices are … Read more

Amazon To Buy Whole Foods: Not Creative Destruction, Just Destruction

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Image Source: Mike Mozart Amazon announced plans to buy Whole Foods. We’re viewing the news as affirmation of our decision to stay largely away from retail exposure in the newsletter portfolios. We think a bidding war for Whole Foods is possible, mostly to keep it and its real estate out of the hands of Amazon, potentially setting up for a true “winner’s curse” scenario. The winner will overpay. By Brian Nelson, CFA We’re not pleased, but then again, it’s okay. Amazon (AMZN) announced June 16 that it will buy high-end grocer Whole Foods (WFM) for $42 per share in cash. Though we mentioned that Amazon was expanding into the grocery store market anecdotally, we must say that it still is … Read more