CVS Health Corp (CVS, Financial) has recently experienced a daily loss of -9.18%, and a 3-month loss of -5.54%. Despite these losses, the company reported an Earnings Per Share (EPS) (EPS) of 2.28. This article aims to answer one crucial question: Is CVS Health (CVS) significantly undervalued? Let's delve into a comprehensive valuation analysis to find out.
Company Overview
CVS Health offers a diverse range of healthcare services, with roots in retail pharmacy operations. The company operates over 9,000 stores, primarily in the U.S., making it the largest pharmacy benefit manager. CVS Health processes over 2 billion adjusted claims annually and serves about 24 million medical members through its top-tier health insurer, acquired through Aetna. The company's pending acquisition of Oak Street will add primary care to the mix, potentially synergizing with its existing business lines.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus Value calculation, CVS Health (CVS, Financial) appears to be significantly undervalued. The stock is currently priced at $66.05 per share, with a market cap of $84.80 billion. This suggests that the long-term return of CVS Health's stock is likely to be much higher than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. Therefore, it's essential to review a company's financial strength before purchasing shares. CVS Health has a cash-to-debt ratio of 0.21, which ranks worse than 100% of companies in the Healthcare Plans industry. The overall financial strength of CVS Health is 6 out of 10, which indicates fair financial strength.
Profitability and Growth
Companies that have been consistently profitable offer less risk to investors. CVS Health has been profitable 9 out of the past 10 years, with a revenue of $339.20 billion and an EPS of $2.28 over the past twelve months. Its operating margin is 4.43%, ranking better than 53.33% of companies in the Healthcare Plans industry. Overall, CVS Health's profitability is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. CVS Health's 3-year average revenue growth rate is worse than 77.78% of companies in the Healthcare Plans industry. Its 3-year average EBITDA growth rate is -9.9%, ranking worse than 70.59% of companies in the Healthcare Plans industry.
ROIC Vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to finance its assets. Over the past 12 months, CVS Health's ROIC was 6.05, while its WACC came in at 5.42.
Conclusion
In summary, CVS Health's stock shows every sign of being significantly undervalued. The company's financial condition and profitability are fair, but its growth ranks worse than 70.59% of companies in the Healthcare Plans industry. To learn more about CVS Health stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
