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Why CVS Health Stock Is Sinking Today

By Keith Speights - Mar 16, 2020 at 12:01PM

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Mounting coronavirus worries combined with the Fed's rate cut caused the healthcare giant's shares to tumble.

What happened

Shares of CVS Health (CVS -1.50%) were sinking 6.3% as of 11:40 a.m. EDT on Monday after falling as much as 11.1% earlier in the day. The healthcare giant was affected by the overall stock market sell-off caused by escalating worries about the novel coronavirus pandemic and the Federal Reserve Board's action to cut interest rates to 0% and inject $700 billion into the U.S. economy.

So what

Although some healthcare stocks shouldn't be affected much by the COVID-19 outbreak, CVS Health isn't one of them. The company's retail business is likely to be hurt as consumers stay home to follow the social distancing recommendations from governmental authorities. CVS Health also owns Aetna, which could potentially experience higher medical costs if a large number of its members require hospitalization due to COVID-19.

CVS pharmacy store

Image source: CVS Health.

But shouldn't the Fed's move to reduce interest rates to 0% and embark on another round of quantitative easing (buying Treasury securities and other securities to try to boost the economy) help companies like CVS Health? Yes, but the fact that the Fed has taken such drastic action so quickly only highlighted concerns about the economic impact of the coronavirus.

Now what

While the news seems to get bleaker by the day, long-term investors should have nothing to worry about. CVS Health will continue to generate significant cash flow from its core pharmacy business and Aetna health insurance business even with a negative impact on its retail sales and medical costs. The company is positioned to survive the current downturn and thrive once the crisis is over. 

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