Why CVS Health Shares Shot 5% Higher Today

What happened

After the company announced that it will expand its prescription drug delivery service throughout the U.S., shares of CVS Health (NYSE: CVS) climbed as much as 5.3% on Tuesday.

So what

The prescription drug Goliath is adding services to insulate itself against potential competitive threats from delivery-oriented retailers, including Amazon.com (NASDAQ: AMZN).

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Increasingly, consumers are embracing companies that focus on convenience and rumors that Amazon.com would enter the prescription drug market have been swirling since 2017. To create a moat around its market share, CVS Health has introduced services such as in-store MinuteClinics and its announced a megamerger with Aetna (NYSE: AET).

The MinuteClinics venture provides a more direct link between writing and fulfilling prescriptions, while the merger with Aetna could make CVS Health the preferred pharmacy for millions of additional people.

Expanding its delivery service follows the company’s prior moves to make filling prescriptions simpler, including drive-ups and curb-side pickup. For $4.99, customers can have prescriptions and other common over-the-counter products delivered within one to two days. Orders can be placed either by phone or using CVS Health’s app on a smartphone or similar device.

CVS Health is also expanding its same-day prescription delivery service beyond New York City, where deliveries began last year, to Boston, Miami, Philadelphia, San Francisco, and Washington, D.C. The same-day service is a bit pricier, though. It costs $8.99.

Now what

Prescription delivery isn’t a new thing for this industry because independent pharmacies have embraced delivery for decades. However, CVS Health’s program will be the first delivery service launched by a national chain so it’s a significant development. It remains to be seen if this will be a profit-friendly move, however. It’s hard to imagine that the end game here isn’t for same-day service nationally, and if CVS Health does end up having to compete with Amazon.com someday on delivery, its delivery service would have to be a loss-leader if it hopes to keep Amazon.com Prime members happy.

Since there’s no insight into whether delivery will be cost-neutral or not, investors might want to rein in a little optimism until we get more details during the company’s next quarterly earnings conference call.

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