CVS Health Corp (CVS, Financial) recently experienced a daily loss of 1.78%, yet it boasts a 3-month gain of 8.27%. With an Earnings Per Share (EPS) of $6.63, investors are keen to determine if the stock is significantly undervalued. The following analysis will delve into CVS Health's valuation, offering insights into whether the current market price reflects the true value of the healthcare giant.
Company Introduction
CVS Health offers a comprehensive range of healthcare services. With over 9,000 retail pharmacy stores, it stands as a dominant player in the U.S. market. The company's expansive operations include a leading pharmacy benefit manager via Caremark and a top-tier health insurer through Aetna, servicing approximately 26 million medical members. The recent acquisition of Oak Street Health introduces primary care services, potentially synergizing with CVS Health's existing business lines. A critical factor in the valuation of CVS Health is the comparison between its current stock price of $73.76 and the GF Value of $108.44, which suggests the stock might be significantly undervalued.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. CVS Health (CVS, Financial) is currently trading at a price that suggests it may be significantly undervalued according to our GF Value Line. This valuation implies that CVS Health's long-term stock return could substantially exceed its business growth, presenting an attractive opportunity for investors.
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Financial Strength
Investing in companies with robust financial strength can mitigate the risk of capital loss. A company's financial resilience can be gauged by its cash-to-debt ratio and interest coverage. CVS Health's cash-to-debt ratio stands at 0.2, which is lower than its industry peers. Nevertheless, its financial strength is deemed fair by GuruFocus, with a score of 6 out of 10.
Profitability and Growth
Profitable companies, particularly those with a history of consistent earnings, are generally safer investments. CVS Health has shown profitability for 9 out of the past 10 years, with a revenue of $347.80 billion and an operating margin of 4.25%, ranking it above more than half of its industry competitors. Its profitability score is a solid 7 out of 10. However, growth is an essential valuation aspect, and CVS Health's 3-year average annual revenue growth rate of 7.4% is below many industry counterparts, as is its EBITDA growth rate.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can reveal its efficiency in generating cash flow relative to its invested capital. CVS Health's ROIC over the past 12 months has been 6.07, surpassing its WACC of 4.63, indicating value creation for shareholders.
Conclusion
Overall, CVS Health's current market valuation suggests it is significantly undervalued. The company maintains fair financial health and profitability, though its growth does not lead the Healthcare Plans industry. To gain deeper insights into CVS Health stock, interested parties are encouraged to 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.
