Analysis: CRM SPLK TWLO WDAY UNH CVS

The U.S. equity markets are trending lower on Monday, though they're trading off session lows at the time this was written. Over the weekend we were greeted with positive news regarding progress with China on a trade deal, which would include a step-up in many U.S. exports like agriculture, chemicals, and liquefied natural gas to the country. After an initial higher open, the market was met with pronounced selling in many high growth, high multiple cloud software names, like Salesforce.com (CRM) and bullpen names Splunk (SPLK) , Twilio (TWLO) , and Workday (WDAY) . Salesforce.com will report earnings after the closing bell later today.

We are also seeing last week's selling in the managed care stocks trickle over in today's session. We debated the risks of a "Medicare for All" bill in our Alert here, and these headlines are bringing the likes of UnitedHealth Group  (UNH) and CVS Health (CVS) lower today.

In fact, the selling in UNH at one point brought the stock down to about $2 above its Christmas Eve low of $232.56, which is kind of remarkable when you think about it. This company is not struggling for growth, they are thriving right now. The company's earnings power was evidenced by the solid fourth quarter earnings beat and supported when management provided 2019 guidance which included earnings growth in the teens percent. That's right. In a market where many are fearing an earnings recession, the choice of selling right now is a terrific fundamental story that is giving you double-digit earnings this year at about 16x times forward estimates. And don't forget that the company is a cash machine and has a huge share repurchase program in place.

We continue to expect near-term headline risk to pressure this stock, but longer term, the fundamentals are strong and that should be the ultimate driver of the direction in price. We would be buyers if we weren't restricted today from trading.

For more information on our trading restriction, please see our Alert here.

And in the CVS Health case, while we are executing scale at these prices, we do want to highlight a bit of news today that could turn into a tailwind down the road. It was reported on Monday that the Trump Administration has begun working on a new approach to how the treatment of kidney disease is paid for. Seema Verma, the head of the U.S. Centers for Medicare and Medicaid Services (CMS) told Reuters in an interview that she is looking for a new treatment solution that favors home dialysis over clinic-based treatment as well improved care in the early stages of the disease and provide access to transplants. The article can be found here.

Enter CVS. For starters, a shift towards at-home care fits right up their alley due to its brick and mortar presence as well as the upcoming benefits from the reformatting stores into the new HealthHubs. And management must have been anticipating some type of a possible change as the company has already made plans to enter dialysis business and has sought regulatory approval for its home dialysis device.

Where else can CVS help here? Leveraging data. Recall that one of the key points of the Aetna acquisition, which the market has almost completely written off at this point, was to provide more integrated data and analytic. Analysts from SVB Leerink pointed out in a note this morning that CVS "plans to utilize medical and pharmacy claims data and predictive analytics to identify people most at risk for kidney disease and progression to kidney failure and manage these patients with their AccordantCare nurses."

Of the managed care group, Leerink believes CVS is "best positioned to leverage its vast retail footprint and access to medical pharmacy claims data to capitalize on the move toward Home Dialysis." This news is not enough to change the direction of the stock in a single session, but it is a breath of fresh air to read how the transformation of CVS Health can improve the patient experience and their overall wellness, as this has been a core reason behind our view of why the stock's price to earnings multiple will expand over time.