Is CVS Health Fairly Valued?

April 11th, 2019 by Trefis Team
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CVS: CVS Health logo
CVS
CVS Health

As per our Trefis Valuation methodology CVS Health (NYSE:CVS) stock is worth $62 which is about 15% higher than the current market price. Our Price Estimate is based on a P/E multiple of 10.84 and an earnings estimate of $5.80 for FY 2019. The company had a mixed FY 2018 wherein they posted a revenue of $194.6 billion, up by 5.3% year on year (YOY). While the earnings were negative, this was attributed to a goodwill impairment charge of $6.1 billion related to the Long Term Care (LTC) business.

For Fiscal year 2019 we expect CVS Health to have a positive growth and report revenues around $200 billion and Net Income is also expected to increase to $5.8 billion. We have summarized our expectations on our interactive dashboard platform, What is the Fundamental Value of CVS Health?  In addition, here is more Consumer Staples data.

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Why have Earnings increased?

  • The growth in earnings are preceded by a positive expected growth in Total revenue estimated at nearly $200 billion from its 3 segments for FY 2019.
    • Revenue from the Prescription Drug segment is expected to be nearly $53.6 billion in 2019 as the retail prescriptions are expected to continue to rise in the US and so is the average revenue per prescription.
    • Revenue from OTC Drugs & General Merchandise segment is expected to continue growing and generate nearly $13.1 billion in 2019. The growth will be primarily pushed by the increasing number of CVS drugstores in the US.
    • Revenue from Pharmacy services segment is the highest contributor to the Total Revenue of the company and is expected to continue to be so. Trefis estimates the segment to generate $132.9 billion in 2019. The growth is expected to be pushed by a higher number of mail order and pharmacy network claims.
  • The high goodwill impairment in 2018 is expected to be a one-time event and the company to recover and post Net Income of approximately $5.8 billion, which leads to an earnings of $5.80 for 2019.

 

In conclusion, CVS Health looks positive for the ongoing year, and according to current Trefis estimates the stock is undervalued by around 15%.

 

 

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