Well I am back on the normal Friday schedule of upcoming ex-dividend stocks to watch for potential long-term entry. This week was both difficult and easy all at the same time. It was difficult because there really isn't a whole lot in terms of value going ex-dividend next week. That being said I do like one company that is going ex-dividend and that company is CVS Health Corporation.

CVS Health Corp operates in the healthcare sector. Its primary business is that of operating retail pharmacies.  --taken from www.gurufocus.com

THE VALUATION

As you can see in terms of valuation I believe that CVS currently sits at a very attractive price even with it gaining some ground over the last couple of months. Why do I think it is undervalued and rated a "safe" buy? Well let's dig into it below.

THE GOOD

CVS is one of the few retail pharmacies left in the United States and to be honest it is the one that I would bet has the best chance of being around for a long time. With the purchase of Target's (TGT) pharmacies last year and with the pending Aetna  (AET) acquisition it is easy to see why I like them. But when you dig deeper you will find something even better. 

CVS began doing a few things over the past couple of years. First it really dug into expanding its pharmacy benefits management, began building/expanding its MinuteClinic locations, and now is trying to enter the health insurance game with that Aetna acqusition. But why?

CVS stated on their website that the goal of the MinuteClinic is to have "half of all Americans will have a MinuteClinic within 10 miles of home". Add to this the ability to provide benefits, pharmaceuticals, and help you manage your plan. Essentialy CVS is vertically integrating retail healthcare with the only thing missing is producing the drugs. 

Moving on from the actual day-to-day business I really like the dividend that CVS delivers to its shareholders. While it currently sits ~2.5% (below what I usually like to see) CVS has a 10yr consecutive growth streak and a payout ratio low enough that it continues to have room to grow. The company also has shown commitment to buybacks as well.

THE BAD

Well you could see an end to that last paragraph that I wrote if the Aetna acquisition goes through. With this aqcuisition, CVS is inheriting Aetna's debt, which will increase their debt load by around 40%. Can CVS deal with this debt and what other cost will come along with this acquision?

Now I don't believe that CVS will have to cut or even stop growth of their dividend because of this but with interest rates rising and a load of new debt you may see the growth slow down to a rate that merely offsets inflation. If you don't have a problem with that then no worries!

THE UGLY

I'm just going to address the elephant in the room, AMAZON (AMZN). Now AMZN has been great at not only disrupting the way things are bought and sold in brick-and-mortar businesses but also has really crushed stock prices of companies in sectors that they "may" get into. Now I have no doubt that AMZN will enter the pharmacy game (to me, it only makes sense) but until I actually see this being done and taking business away from places like CVS then I find it hard to be overly fearful.

So why am I saying it is the ugly then? Because this could be catastrophic for retail pharmacies if I can be one-click, and two days, away from my prescriptions. With an elderly population that may not want to leave the house anyways, this would be a great alternative.

CONCLUSION

Listen, I really like CVS and am looking forward to adding it to my portfolio in the near future. CVS is currently working to create a business plan that is going to be hard for AMZN to kill (unless AMZN can send a Dr. to my house) and has already began with same/next day deliveries of prescriptions. I believe that CVS is very undervalued right now and also believe that with an Aetna acquisition you could see a company being built that will be able to compete with AMZN. 

Remember that CVS has one thing that AMZN does not, over 9,700 locations in 49 states as well as over 1100 clinics. They also have data on drugs and patients that AMZN is going to have to play catch up on. In my opinion, CVS is a buy, and honestly looks like a hold for a long, long, time.

***After writing this early this week, but before posting Seeking Alpha alerted me that a CVS article was posted. If you want to dig deeper than my post please go read this article by David. J. Waldron. It reveals a lot more information and, honestly, is much better written than my small abstract.