CVS Health shares fell by -1.5% during the day's morning session, and are now trading at a price of $57.51. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
CVS Health Is Potentially Undervalued and Potentially Undervalued:
CVS Health Corporation provides health solutions in the United States. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 22.08 and an average price to book (P/B) ratio of 3.05. In contrast, CVS Health has a trailing 12 month P/E ratio of 10.2 and a P/B ratio of 0.96.
When we divide CVS Health's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -10.49. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Growing Revenues but Not Enough Current Assets to Cover Current Liabilities:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $194,579 | $256,776 | $268,706 | $292,111 | $322,467 | $357,776 |
| Operating Margins | 2% | 5% | 5% | 5% | 2% | 4% |
| Net Margins | 0% | 3% | 3% | 3% | 1% | 2% |
| Net Income (M) | -$594 | $6,634 | $7,179 | $8,001 | $4,311 | $8,344 |
| Net Interest Expense (M) | $2,619 | $3,035 | n/a | $2,503 | $2,287 | $2,658 |
| Depreciation & Amort. (M) | $2,718 | $4,371 | $4,441 | $4,486 | $4,224 | $4,366 |
| Diluted Shares (M) | 1,044 | 1,305 | 1,314 | 1,329 | 1,323 | 1,290 |
| Earnings Per Share | -$0.57 | $5.08 | $5.46 | $6.02 | $3.26 | $6.47 |
| EPS Growth | n/a | 991.23% | 7.48% | 10.26% | -45.85% | 98.47% |
| Avg. Price | $61.67 | $55.04 | $59.5 | $79.03 | $97.97 | $57.51 |
| P/E Ratio | -108.19 | 10.79 | 10.86 | 13.02 | 29.78 | 8.86 |
| Free Cash Flow (M) | $6,828 | $10,391 | $13,428 | $15,745 | $13,450 | $10,395 |
| CAPEX (M) | $2,037 | $2,457 | $2,437 | $2,520 | $2,727 | $3,031 |
| EV / EBITDA | 19.77 | 8.2 | 7.32 | 8.45 | 13.79 | 7.02 |
| Total Debt (M) | $74,694 | $68,480 | $64,647 | $56,176 | $52,254 | $61,410 |
| Net Debt / EBITDA | 10.48 | 3.84 | 3.09 | 2.63 | 3.23 | 2.94 |
| Current Ratio | 1.03 | 0.94 | 0.91 | 0.89 | 0.95 | 0.86 |
CVS Health has growing revenues and increasing reinvestment in the business and exceptional EPS growth. Additionally, the company's financial statements display decent operating margins with a stable trend and generally positive cash flows. However, the firm has not enough current assets to cover current liabilities because its current ratio is 0.86. Finally, we note that CVS Health has significant leverage levels.
