Amidst daily fluctuations and a modest 3-month gain of 0.51%, CVS Health Corp (CVS, Financial) has experienced a recent drop of -3.49% in its stock price. With an Earnings Per Share (EPS) of 6.63, investors are prompted to consider whether the stock is significantly undervalued. This article seeks to explore the valuation of CVS Health (CVS) and determine its true market value.
CVS Health offers a comprehensive range of healthcare services, from its vast retail pharmacy operations with over 9,000 stores to its position as the largest pharmacy benefit manager through Caremark, and its role as a top-tier health insurer via Aetna. With the recent acquisition of Oak Street, CVS Health has expanded into primary care services, potentially enhancing synergies across its existing business lines. The company's current stock price of $66.9, against a GF Value of $107.84, signifies a potential undervaluation, which warrants a closer examination.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, taking into account historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. CVS Health (CVS, Financial) is currently deemed significantly undervalued according to this calculation. With a market cap of $84.70 billion, the disparity between the current price and the GF Value suggests that the long-term return of CVS Health's stock could be much higher than its business growth.
Investing in companies with robust financial strength is critical to avoid permanent capital loss. CVS Health's financial strength is rated as fair, with a cash-to-debt ratio of 0.2, positioning it lower than many of its peers within the Healthcare Plans industry. This evaluation is crucial as it gives insight into the company's ability to manage debt and sustain its operations.
Profitability and Growth
A company's profitability is a less risky investment criterion, especially when it shows consistency over time. CVS Health has maintained profitability for 9 out of the past 10 years, with a commendable operating margin that outperforms more than half of its industry peers. However, its growth rates in revenue and EBITDA have not been as impressive, trailing behind a significant portion of competitors within the Healthcare Plans sector.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can reveal its value creation efficiency. CVS Health's ROIC exceeds its WACC, indicating that the company is generating value for its shareholders, a positive sign for potential investors.
In conclusion, the analysis suggests that CVS Health (CVS, Financial) is significantly undervalued. The company exhibits a fair financial condition and profitability, despite its growth ranking below many competitors in the Healthcare Plans industry. For a detailed exploration of CVS Health's financials, investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.