Shares of CVS Health (CVS) Fall Again, Closing in on 52 Week Low.

CVS Health was one of the market's biggest losers today, losing 8.0% of its value and underperforming both the S&P500 and Dow Industrial composite indices by -0.0%. The large-cap Consumer Staples company ended the day at $66.89, closing in on its 52 week high low of $66.34 and is 28.14% below its average target price of $93.09. Over the last 12 months, CVS Health is down -35.0%, and has underperformed the S&P 500 by 39.0%. The stock has an average analyst rating of buy.

CVS Health has a trailing 12 month price to earnings (P/E) ratio of 22.2, which corresponds to its share price divided by its trailing earnings per share (EPS) of $3.01. The company's forward P/E ratio is 7.8 based on its forward EPS of $8.61.

Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Consumer Staples sector has historically had an average P/E ratio of 24.36. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.

Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. CVS Health's P/B ratio of 1.18 indicates that the company is fairly valued when compared to the Consumer Staples sector's average P/B ratio of 4.29.

To understand CVS Health's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-12-31 322,467,000 267,965,000 16.9 -5.16
2021-12-31 292,111,000 240,063,000 17.82 -2.36
2020-12-31 268,706,000 219,660,000 18.25 2.93
2019-12-31 256,776,000 211,248,000 17.73 n/a
  • Average gross margins: 17.7 %
  • Average gross margins growth rate: -1.2 %
  • Coefficient of variability (lower numbers indicate more stability): 3.2 %

Next, we consider the CVS Health's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-12-31 322,467,000 38,212,000 5.05 -1.56
2021-12-31 292,111,000 37,066,000 5.13 -0.97
2020-12-31 268,706,000 35,135,000 5.18 10.92
2019-12-31 256,776,000 33,541,000 4.67 n/a
  • Average operating margins: 5.0 %
  • Average operating margins growth rate: 2.0 %
  • Coefficient of variability (lower numbers indicate more stability): 4.6 %

Since both CVS Health's gross margins and operating margins tend to be positive, we know that its business is currently profitable. However, it's important to take into account their variability and overall growth trend to make a definitive conclusion regarding the company's strength.

Our final point of analysis is CVS Health's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for CVS Health is as follows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cashflow ($ k) YoY Growth (%)
2022-12-31 16,177,000 -2,727,000 13,450,000 -14.58
2021-12-31 18,265,000 -2,520,000 15,745,000 17.25
2020-12-31 15,865,000 -2,437,000 13,428,000 29.23
2019-12-31 12,848,000 -2,457,000 10,391,000 n/a
  • Average free cash flow: $13.45 Billion
  • Average free cash flow growth rate: 6.7 %
  • Coefficient of variability (lower numbers indicating more stability): 16.6%

This is the pool of liquidity that the company can use to reinvest in its business and to pay its equity investors a dividend. Investors in CVS Health enjoy a dividend yield of 3.2%, and they can expect this to continue based on the company's positive cash flows.

Overall, CVS Health seems to be a strong business with an attractive valuation in numeric terms. Potential investors may want to take a closer look at the stock, and focus on whether it also has qualitative factors that show that it can provide solid returns.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.