Author: Noah Kiedrowski

CVS: Walking Away - Amazon Effect Proving Too Great

Posted on by Noah Kiedrowski

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

I finally had to throw in the towel on CVS Health Corporation (NYSE:CVS) and walk away from the stock. Since its all-time highs in 2015, several headwinds have negatively impacted its growth, and the changing marketplace conditions have plagued the stock. Exacerbating this downward movement from the factors above, Amazon (AMZN) has entered the fray and has resulted in another leg down for the stock. The latter half of 2015 and throughout 2016 the political backdrop was a major headwind for the entire pharmaceutical supply chain from drug manufacturers to pharmacies/pharmacy benefit managers (i.e., CVS and Walgreens (WBA)) and the drug wholesalers in-between (i.e. McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC)). Marketplace trends forced CVS to cut guidance for Q4 2016 and the full-year 2017 numbers. CVS stated that “unexpected marketplace actions that will have a negative impact on our Q4 2016 results and a more meaningful impact on our outlook for 2017”. CVS suffered a self-inflicted wound and lost a contract with the Department of Defense which carries tens of millions of prescriptions on an annual basis. A new restricted network relationship between Prime Therapeutics and Walgreens impacts CVS Pharmacy’s participation in selected fully-insured networks in several key states, and many cases make CVS Pharmacy a non-preferred provider for Medicare Part D as well. These prescriptions tend to be the most profitable prescriptions as well. Lastly, Amazon’s purchase of Whole Foods and behind the scenes moves in the healthcare space has incited rumors that Amazon is looking to gain entry into the pharmacy space via leveraging the Whole Foods physical footprint of storefronts. I’ve written several articles contending that CVS presents a compelling investment opportunity in the ever-expanding healthcare space. My investment thesis was based on an aging population, growth in long-term care facilities and the pharmacy benefit management segment. All of this in a backdrop of CVS being highly acquisitive, continuing to deliver earnings growth, revenue growth, growing dividends and has an aggressive share buyback program in place. The wildcard may be the Amazon threat with its first real pivot after acquiring Whole Foods with subsequent potential in entering the pharmacy space as well.
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IBB - A Clearer Runway Ahead

Posted on by Noah Kiedrowski

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

The Biotechnology cohort has finally made up much of the lost ground during the pummeling from both sides of the political aisle during the 2016 presidential race. Tweets and excerpts during the campaign trail from Hillary Clinton, Bernie Sanders and Donald Trump put the biotech cohort through the wringer via aiming for drug pricing. The sustained sell-off lead to the entire cohort to sell off from all-time highs of $400 to $240 or 40% in only 6 months as measured via the iShares Biotechnology Index ETF (NASDAQ:IBB). From February of 2016 through June of 2017 IBB traded in a tight range from $250 to $300 while Donald Trump continually fired shots against the healthcare sector. Any healthcare related stocks became volatile on the heels of any statement or tweet from Donald Trump. Shortly after the inauguration, Trump stated that drug companies are “getting away with murder” when speaking to the drug pricing issue. As the proposed healthcare legislation appears to be dead as of now, a level of certainty has entered the picture, and the drug pricing threats are not perceived to be as bad as initially feared. Recently the index has had a resurgence moving to a 52-week high of $335 with a much clearer runway ahead as the political headwinds continue to abate. As the confluence of abating political threats, drug pricing certainty, and continuity of the current healthcare backdrop, I feel the index has room to continue its upward trend and retrace its 2015 level of $400. Continue reading "IBB - A Clearer Runway Ahead" →

Disney's Long-Term Vision - Growth

Posted on by Noah Kiedrowski

Noah Kiedrowski - INO.com Contributor - Biotech


The Long-Term Vision – Growth and Direct to Consumer Offerings

The Walt Disney Company (NYSE:DIS) reported an information dense earnings report that included mixed numbers (as comparable numbers from the previous year were banner numbers), its vision for the future via streaming while cutting off Netflix (NFLX) in the process. As always, a conspicuous ESPN remained at the forefront of investors’ minds, serving as the root cause of this streaming initiative as profits and revenue from the Media Networks division have stalled out over the past few years. Simply put, Disney is going all-in on a Disney branded streaming service come 2019, more on that later. As investors digest the earnings report and fixate on the eroding Media Networks division, I think Disney is offering a long-term buying opportunity near ~$100 per share. Although ESPN makes up a disproportionate amount of the company’s revenue and income, all of its other franchises are posting robust growth hence Disney will be relying less on its ESPN franchise over the coming years. It’s noteworthy to highlight (when comparing year-end fiscal numbers) that in 2011 its Media Networks segment made up 70% of Disney’s income. That percentage has decreased to 49% at the end of 2016. It curtailed its Media Networks contribution to the company's income by 30% since 2011. Disney’s perpetual stock slump and roller coaster ride over the last two years has almost entirely been attributable to the decrease in ESPN subscribers and subsequent revenue slowdown. I feel too much of an emphasis is being placed on ESPN as it weighs less on overall profits. Disney is evolving to address this deteriorating business segment with initiatives put forth previously and doubling down during its recent conference call. Disney offers a compelling long-term investment opportunity considering the growth, pipeline, Media Networks remediation plan, diversity of its portfolio, share repurchase program and dividend growth. Continue reading "Disney's Long-Term Vision - Growth" →

CVS Posts Robust Earnings - Compelling Long-Term Buy

Posted on by Noah Kiedrowski

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

CVS Health Corporation (NYSE:CVS) is fresh off reporting earnings for FYQ2 with beats on both the top and bottom line. EPS came in at $1.33 with revenue coming in at $45.69 billion, beating by $0.02 and $320 million, respectively. Since reporting earnings, the stock hasn’t moved as much of the pessimistic narrative was priced into the stock. Since its high of $112 in 2015, a slew of issues negatively impacting its growth and marketplace have plagued the stock. Firstly, the political backdrop was a significant headwind for the entire pharmaceutical supply chain from drug manufacturers to pharmacies/pharmacy benefit managers (i.e., CVS and Walgreens (WBA)) and the drug wholesalers in-between (i.e., McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC)). Secondly, marketplace trends forced CVS to cut guidance for Q4 2016 and the full-year 2017 numbers. CVS stated that “unexpected marketplace actions that will have a negative impact on our Q4 2016 results and a more meaningful impact on our outlook for 2017”. Thirdly, CVS lost a contract with the Department of Defense which carries tens of millions of prescriptions on an annual basis. A new restricted network relationship between Prime Therapeutics and Walgreens impacts CVS Pharmacy’s participation in selected fully-insured networks in several key states, and many cases make CVS Pharmacy a nonpreferred provider for Medicare Part D as well. These prescriptions tend to be the most profitable prescriptions as well. Lastly, Amazon’s purchase of Whole Foods and behind the scenes moves in the healthcare space has incited rumors that Amazon is looking to gain entry into the pharmacy area via leveraging the Whole Foods physical foot print of store fronts. I’ve written several articles contending that CVS presents a compelling investment opportunity in the ever expanding healthcare space. My investment thesis was based on an aging population and growth in long-term care facilities and the pharmacy benefit management segment. All of this in a backdrop of CVS being highly acquisitive, continuing to deliver robust earnings growth, revenue growth, growing dividends and has an aggressive share buyback program in place. It’s a matter of time before CVS will trend higher and in the meantime, investors will be paid to wait via dividends and share buybacks. The wildcard may be the Amazon threat with its first real pivot after acquiring Whole Foods with subsequent potential in entering the pharmacy space as well. Continue reading "CVS Posts Robust Earnings - Compelling Long-Term Buy" →