Your Briefing on CVS Health Stock

We've been asking ourselves recently if the market has placed a fair valuation on CVS Health. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.

Trades Below Its Graham Number but Has an Elevated P/E Ratio:

CVS Health Corporation provides health services in the United States. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, CVS Health has a trailing 12 month P/E ratio of 32.3 and a P/B ratio of 1.25.

CVS Health's PEG ratio is 1.88, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

Healthy Debt Levels but a Declining EPS Growth Trend:

2017-02-09 2018-02-14 2019-02-28 2020-02-18 2021-02-16 2022-02-09
Revenue (MM) $177,546 $184,786 $194,579 $256,776 $268,706 $292,111
Gross Margins 16.0% 15.0% 16.0% 18.0% 18.0% 18.0%
Operating Margins 6% 5% 5% 5% 5% 5%
Net Margins 3.0% 4.0% 0.0% 3.0% 3.0% 3.0%
Net Income (MM) $5,317 $6,622 -$594 $6,634 $7,179 $7,910
Net Interest Expense (MM) -$1,078 -$1,062 -$2,619 -$3,035 -$2,907 -$2,503
Earnings Per Share $4.93 $6.47 -$0.57 $5.08 $5.46 $5.95
EPS Growth n/a 31.24% -108.81% 991.23% 7.48% 8.97%
Diluted Shares (MM) 1,079 1,024 1,044 1,305 1,314 1,329
Free Cash Flow (MM) $12,365 $9,925 $10,070 $15,305 $18,302 $20,785
Capital Expenditures (MM) -$2,224 -$1,918 -$1,205 -$2,457 -$2,437 -$2,520
Net Current Assets (MM) -$26,586 -$26,207 -$92,670 -$107,977 -$104,645 -$97,610
Long Term Debt (MM) $25,615 $22,181 $71,444 $64,699 $59,207 $51,971

CVS Health has a pattern of improving cash flows, healthy debt levels, and average operating margins with a stable trend. However, the firm suffers from slimmer gross margins than its peers and declining EPS growth. Finally, we note that CVS Health has weak revenue growth and a flat capital expenditure trend.

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.