CVS Health (NYSE: CVS) is scheduled to report its Q3 2022 results on Wednesday, November 2. We expect CVS stock to trade lower post the results announcement, with Q3 revenue and earnings likely falling below the consensus estimates, primarily weighed down by higher costs and lower contribution from the Covid-19 vaccine administration. Although we expect CVS to report a downbeat Q3, we find that CVS stock is undervalued, as discussed below. Our interactive dashboard analysis on CVS Health’s Earnings Preview has additional details.
(1) Revenue expected to be marginally below the consensus estimates
- Trefis estimates CVS’ Q3 2022 revenues to be around $76.7 billion, reflecting a 4% y-o-y growth, and it compares with the $76.8 billion consensus estimate.
- While CVS’ Covid-19 vaccine and testing drove its revenue growth in 2021, its contribution is expected to be much lower this year.
- However, CVS should benefit from a continued rise in total medical membership.
- Looking back at Q2 2022, CVS reported an 11% y-o-y rise in sales to $80.6 billion, led by higher retail, pharmacy services, and health care benefits revenue.
- Our dashboard on CVS Health’s Revenues offers more details on the company’s segments.
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(2) EPS likely to be below the consensus estimates
- CVS’ Q3 2022 adjusted earnings per share (EPS) is expected to be $1.95 per Trefis analysis, below the $1.99 consensus estimate. This compares with the $1.97 figure the company reported in the prior-year quarter.
- CVS’ adjusted net income of $3.2 billion in Q2 2022 reflected a modest 1% y-o-y decline, as higher revenue was offset by a 76 bps decline in operating margin.
- For the full-year 2022, we expect the adjusted EPS to be $8.40 aligning with the level seen in 2021.
(3) CVS stock has more room for growth
- We estimate CVS Health’s Valuation to be $125, which is 33% above the current market price of $94.
- This represents a P/E multiple of 15x based on our EPS forecast of $8.40 in 2022.
- At its current levels, CVS stock is trading at 11x its expected forward earnings, compared to the 12x figure seen in late 2021.
- We have assigned a slightly higher multiple, expecting robust earnings growth over the coming years.
- Furthermore, if the company reports upbeat Q3 results and provides guidance better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for CVS stock.
While CVS stock looks undervalued, it is helpful to see how CVS Health’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis and recent market volatility have created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Target vs. Emergent Biosolutions.
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