Will CVS Health Stock Rise Post Q4 Results?

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CVS Health

CVS Health (NYSE: CVS) is scheduled to report its Q4 2022 results on Wednesday, February 8. We expect CVS stock to trade sideways post the results announcement, with Q4 revenue likely falling marginally below and earnings aligning with the consensus estimates. While we expect the company to post steady growth for its healthcare and pharmacy services businesses,  higher costs and lower contributions from the Covid-19 vaccine administration likely weighed on its overall performance. Although we expect CVS to report a mixed Q4, CVS stock looks 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’ Q4 2022 revenues to be around $76.0 billion, reflecting no growth, and it compares with the $76.2 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 Q3 2022, CVS reported a 10% y-o-y rise in sales to $81.2 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 align with the consensus estimates

  • CVS’ Q4 2022 adjusted earnings per share (EPS) is expected to be $1.92 per Trefis analysis, aligning with the consensus estimate. This compares with the $1.98 figure the company reported in the prior-year quarter.
  • CVS’ adjusted net income of $2.8 billion in Q3 2022 reflected a 5% y-o-y rise, led by higher revenue, partly offset by a 30 bps decline in operating margin to 5.2%. However, the medical cost ratio improved by 230 bps y-o-y.
  • The company took a one-time charge of $5 billion in Q3 to settle all opioid-related litigation.
  • For the full-year 2023, we expect the adjusted EPS to be $8.94, compared to an estimated $8.63 in 2022.

(3) CVS stock is undervalued

  • We estimate CVS Health’s Valuation to be $125, which is a significant 43% above the current market price of $88.
  • At its current levels, CVS stock is trading at 10x its expected forward earnings of $8.94 on a per share and adjusted basis for full-year 2023, 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 Q4 results and provides 2023 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Feb 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CVS Return -1% -6% 11%
 S&P 500 Return 1% 7% 84%
 Trefis Multi-Strategy Portfolio 2% 14% 260%

[1] Month-to-date and year-to-date as of 2/2/2023
[2] Cumulative total returns since the end of 2016

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