CVS Soars 17% In A Single Month, Time To Buy The Stock?

We believe there are several things to fear in CVS stock given its overall Weak operating performance and financial condition. Hence, despite its Moderate valuation, this makes the stock look Risky. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $90 Bil in market cap, CVS Health provides pharmacy benefit management, retail drug sales, and health services through approximately 9,900 stores and 1,200 MinuteClinic locations across the United States.

[1] Valuation Looks Moderate

This table highlights how CVS is valued vs broader market. For more details see: CVS Valuation Ratios

[2] Growth Is Moderate

• CVS Health has seen its top line grow at an average rate of 8.1% over the last 3 years
• Its revenues have grown 5.0% from $361 Bil to $379 Bil in the last 12 months
• Also, its quarterly revenues grew 7.0% to $95 Bil in the most recent quarter from $88 Bil a year ago.

This table highlights how CVS is growing vs broader market. For more details see: CVS Revenue Comparison

[3] Profitability Appears Very Weak

• CVS last 12 month operating income was $11 Bil representing operating margin of 2.9%
• With cash flow margin of 2.3%, it generated nearly $8.8 Bil in operating cash flow over this period
• For the same period, CVS generated nearly $5.3 Bil in net income, suggesting net margin of about 1.4%

This table highlights how CVS profitability vs broader market. For more details see: CVS Operating Income Comparison

[4] Financial Stability Looks Weak

• CVS Debt was $81 Bil at the end of the most recent quarter, while its current Market Cap is $90 Bil. This implies Debt-to-Equity Ratio of 90.3%
• CVS Cash (including cash equivalents) makes up $13 Bil of $256 Bil in total Assets. This yields a Cash-to-Assets Ratio of 5.0%

[4] Downturn Resilience Is Weak

CVS has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• CVS stock fell 41.2% from a high of $110.83 on 8 February 2022 to $65.17 on 31 August 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $81.42 on 7 January 2024 , and currently trades at $71.21

 
2020 Covid Pandemic

• CVS stock fell 31.2% from a high of $76.05 on 16 January 2020 to $52.30 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 11 January 2021

 
2008 Global Financial Crisis

• CVS stock fell 45.6% from a high of $44.12 on 5 June 2008 to $23.98 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 16 February 2012

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read CVS Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.