CVS Health Corporation 78,99 +0,33 +0,42% is the biggest pharmacy chain in the USA. It has 9.900+ retail locations in the USA, where patients can pick up their medication and buy other pharmaceutical goods. Next to this, CVS has been quite innovative as it has developed healthcare apps, helping customers to manage and order prescriptions online. Next to that the company also owns 1.100 clinics, where minor health conditions are treated, health screenings are performed, chronic conditions monitored, wellness services are provided, and vaccinations are given. It has special healthcare services, assisted living facilities for seniors and a network of 90 infusion centers. In early 2018 CVS also bought an insurance company, Aetna. Zooming out, it is clear that CVS is trying to build a complete user experience that touches many needs of its customers and patients.
CVS has a market capitalization of 84 billion USD, belonging to the larger companies of the healthcare plans and pharmacy sector. It had a EBIT of almost 12 billion USD in 2019. At the time of writing the share price is approximately 65 USD. It has a dividend yield of 3.05%, which is much higher than the industry average. It also has a nice growth curvature in the amount of dividend being paid out every quarter. This is good, because then a share becomes interesting for long term investors. CVS has a Beta of 0.69, this is lower than 1 meaning it is less volatile than the NYSE on which it is indexed.
Looking to the financial ratios of CVS, it has a P/E ratio of 10.42, which is a bit lower than the industry average, showing that CVS is a little undervalued. The P.E.G. ratio provides information about whether a company is over or undervalued, keeping in account the companies’ earnings growth estimates for the next three to five year. The P.E.G. ratio of CVS is 1.64, this is relatively high for the industry and is above 1.00.
The price to sales ratio is an indicator that shows what investors are prepared to pay per USD of sales for a stock. Currently the ratio of CVS is 0.32, this is a bit lower than the industry average. This is bad news as it shows investors are not willing to pay a lot for a part of the sales.
The expected earnings per share (EPS) for CVS for the next year is 7.54 per share. This represents about 11.5% of the current share price. There is an expected growth of 6.34% for the next five years. This is a pretty low value compared to the industries average of 9.9%.
Looking at the price to free cashflow ratio (P/FCF) of CVS, it is 7.69. This is somewhat lower than the average of the industry of 9.9. This shows that it might be a bit undervalued. Next, looking at the 2019 annual report and the latest 2020 2nd quarter report, not much noticeable is apparent. However, this quarter CVS has added almost 4 billion USD to the long term debt. When looking at the cashflow, this appears to be a unnecessary move as the cashflow was also positive without the added debt. The total cash comprises now about 15 billion USD. The added debt is most likely used to boost earnings.
In conclusion, CVS looks like a good long term buy. Overall, looking at the financial ratios, CVS is slightly undervalued. It has a good long term holistic strategy, by trying to serve the customers in every way. From getting flu shots to being insured. It has a high dividend yield with a nice annual growth of the dividend making it interesting for big long term investors and hedge funds. Next it has a Beta of 0.69 meaning it is less volatile than the NYSE on which it has been indexed, which is also very much liked by long term investors. It has a nice high P.E.G. value of 1.64 which is above the industry average. Next to that, it is impacted by COVID-19, however, most likely less impacted than many other companies as prescriptions and medical checkups will always be needed.
Max Ritt has over 4 years experience with trading and analyzing ETFs and shares. He predicted the economic implications of the election of president Trump and the BREXIT well ahead of others. Recently he started the MaxRitt.nl webpage where he blogs mainly about investing.
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